Who says there is less rolling resistance on 25mm tires? You may have read that test by fat tire makers but their caveat is "at the same tire pressure." Well, it is inappropriate to run 23 and 25 at the same psi so basically what they were saying is that if a 23 is underinflated it'll have the same rolling resistance as a 25mm. But when it's properly inflated, it'll have less of course (on smooth roads).
Good question. I had heard that 25mm tires had less rolling resistance than 23mm tires and never backed it up. Sheldon Brown apparently refutes this claim. Digging deeper, it seems as though it is very tire dependent. See http://www.terrymorse.com/bike/rolres.html
, or more specifically http://www.terrymorse.com/bike/imgs/rolres2.gif
where the rolling resistance of Specialized and Avocet clinchers are compared. Within the different types of Specialized tires, the rolling resistance is greater for 28mm than 25mm tires. But the Avocet tires are all over the place with some 25mm tires having greater rolling resistance than 28mm. When comparing between tire manufacturers, the general trend seems that the larger width tires have greater rolling resistance than smaller widths, but this is not consistent.
But to throw some mud into the debate, there is this from the Schwalbe Tire website (http://www.schwalbetires.com/tech_info/rolling_resistance#why
"The answer to this question lies in tire deflection. Each tire is flattened a little under load. This creates a flat contact area. At the same tire pressure, a wide and a narrow tire have the same contact area. A wide tire is flattened over its width whereas a narrow tire has a slimmer but longer contact area. The flattened area can be considered as a counterweight to tire rotation. Because of the longer flattened area of the narrow tire, the wheel loses more of its "roundness" and produces more deformation during rotation. However, in the wide tire, the radial length of the flattened area is shorter, making the tire "rounder" and so it rolls better."
However, as Stephens points out, the rolling resistance of different width tires are tested at the same pressure, while smaller width tires can be inflated to higher pressures than wider tires thus reducing road contact and rolling resistance. The Schwalbe Tire website continues:
"Wide tires only roll better at the same inflation pressure, but narrow tires can be inflated to higher pressures than wide tires. However, they then obviously give a less comfortable ride. In addition to this, narrow tires have an advantage over wide ones at higher speeds, as they provide less air resistance. Above all, a bicycle with narrow tires is much easier to accelerate because the rotating mass of the wheels is lower and the bicycle is much more agile. At constant speeds of around 20 km/h, the ride is better with wider tires. In practice, the energy saving is even greater than in theory as the elasticity of the tires absorbs road shocks, which would otherwise be transferred to the rider and so saves energy."
So, to answer my own questions: narrower tires are used by most of us because the higher pressures reduce rolling resistance (and the rolling resistance comparison of different tire widths is essentially biased because they are tested at the same pressure rather than ideal pressures for each width of tire), and the weight savings and profile improve performance. However, wider tire widths provide a more comfortable ride and, as a result, may save energy.