The main reason is etymological. The word "utopia" comes from the Greek root for place (topia) and the prefix "eu" means "good." So, the meaning of utopia is simply "the good place."
The use of "utopia" to mean an idealized society goes back as far as Plato, the ancient Greek philosopher. In his dialogues, he uses the concept of a fictional ideal state to create his ideal of a perfect, well-ordered society. It should be pointed out that in Plato's most famous use of this technique, in "The Republic," his discussion of the ideal state is in fact a part of a larger argument about the nature of the ideal man, with well-ordered state as a metaphor.
The more recent usage, and the one more influential in modern imagination, comes from Sir Thomas More, the 16th century English statesman and author. More, in a book titled "Utopia," has his characters (based on himself and certain real-life acquaintances) discuss an ideal state. It has since taken hold as a synonym for both a fanciful imaginary ideal (in it's older meaning) and concept of the ideal state. This ideal, of course, varies widely depending on the political philosophy of the person proposing a "utopia."
This word is also connected to its later derivative "dystopia," which essentially describes the opposite: a fictional society in which things have gone very wrong. This has become increasingly popular in science fiction, used with great impact in such works as George Orwell's "1984" and Ray Bradbury's "Fahrenheit 451."