Some people have problems affording new clothes. These people would get hand me downs from older siblings that would not always fit them. Since they didn't fit properly, they would be baggy and the pants would sag a little. The hard life like this was romanticized by hip hop in the late 80s and throughout the 90s, making "Ghetto" a style. This is pretty much were it comes from. The reason the kids at your school do it is because they see older people who grew up with this style of streetwear doing it. Some sag their pants more than others for just that reason: so they are sagging lower than others, and are therefore cooler than others. This is getting to be somewhat dated, as now I observe the trend is going toward tighter, more fitting jeans.
Because girls apparently like sagging (when my teacher talked about it in class, many girls responded by calling it "hot" - don't ask me why). It's also the fad nowadays - "all the other guys are doing it."
Personally, I think it's ridiculous, especially when it's so low they have to constantly pull it up while walking, and they have to walk like penguins just to keep them up like this link