Following the Civil War, the federal government feared revenue losses because some people were cleaning and re-using postage stamps. It commissioned numerous experiments aimed at making it difficult to do this. Experiments involved cancellation devices that abraded or cut the stamp surface, inks and papers that would dissolve during cleaning, and even one misguided trial involving gunpowder.
Charles F. Steel, a supervisor with the National Bank Note Company, is credited with inventing a process that embossed a waffle-line pattern into the stamp. The procedure broke the paper fibers, allowing ink to penetrate the paper. This made cleaning more difficult. The Post Office Department issued the first such stamps using the process in 1867. The all-over pattern made the paper very fragile, making separation at the perforations difficult. The government amended its contract with the National Bank Note Company, specifying that these 'grills' be applied to postage stamps prior to delivery in 1868.
The National Bank Note Company experimented with a number of grill sizes and styles: an overly large grill weakened the stamp; a small grill did not produce the desired effect. In 1916, William L. Stevenson classified the different grill sizes using the letters A to J, with one style — the Z grill — differing in the horizontal orientation of the small ridges at the top of each peak.
Some grilled stamps are quite common, but not all grill patterns were used on each denomination of a stamp. In some cases, very few copies remain of certain stamp/grill combinations. This has produced some of philately's greatest rarities — the 1-cent and 15-cent stamps of the 1861 Issue with the Z grill (there are only two copies each known at this time) and the 3-cent denomination with the B grill (only four copies known, all originally affixed to the same envelope).
In 1875, the grilling of stamps ended. Today, experts agree that the government's perception of the reuse problem was greatly exaggerated and that the costs involved in preventing reuse greatly exceeded the revenue protected.
1867-68 Grilled Issues. The Siegel Encyclopedia. http://siegelauctions.com/enc/1867.htm
Steel, Charles F. Improvement in the Manufacture of Postage-Stamps: Letters Patent No. 70,147. United States Patent Office. October 22, 1867. http://www.google.com/patents?id=GJMAAAAAEBAJ&printsec=abstract&zoom=4&dq=Charles+F.+Steel
Stevenson, William L., and Lester George Brookman. United States Grills and Notes on the Grilled Issues of the U.S. Edited by William Herzog. Triad Publications, 1980.
Notes on Grilled Issues of the United States. James Dire. http://www.jamesdire.net/grill.html