There is no such thing as truly stainless steel, stain resistant is probably a better description. It is rust resistant too but on the whole it's hard to get it to take and keep a good edge.
First found by Frenchman Pierre Berthier in 1821 there have been many variation of stainless steel since which all have different properties and ingredients. The main additive is Chromium which protects the steel from oxidising, all very scientific. It's stain/corrosion resistant which makes it the perfect steel to create knives out of.
Up until recently all knives were made from one of the stainless steel alloys, they did their job well and continue to do to. They don't however hold a very good edge and quickly dull. This is why we are so used to the image of chefs using honing rods on them all the time to keep their edge.
This was simply "par for the course" and part of owning a kitchen knife. The fact they did not rust was a great improvement from the whole carbon knives of the time which needed more care and attention to keep at their best (despite holding a better edge). So there was a trade off, easy maintenance and long life in exchange for the perfect edge.
Stainless can be heat treated during manufacturing the knife to make it harder which allows it to take a better edge, this is the process all good stainless kitchen knives will go under.
Stainless these days is still a fine material for making knives from but it really comes into its own when used to clad newer better steels which are used for the cutting edge. This gives you a better edge yet most of the benefit of the low maintenance of stainless.
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Read more about Knife steel.