Lives have been used in video games relatively since the very origin of games, but was just usually dignified as the person who had lost the most times a certain total of times. More modernly, it is usually used in a modestly shrinking health bar, or percentage, usually starting in 100s.
Probably one of the earliest and most recognizable uses of "lives," was in Pong. Pong simply used the other persons score as a means of unofficial life. The higher the persons score went, the lower your unseen "health" goes, similar to a ratio system. Example: 0 - 0, 0 - 1, 0 - 2, 1 - 1 until one or the other reaches a "22" level of ratio, or as the scoring system would put it more simply, an 11.
1970s to Late 1990s
In the 1970s, most arcade games used a system of three lives or less, zero usually counting as a life. Example: Galaga x 3
Throughout the 1980s, for video games this became a nearly universal setting, transforming the gaming world into something that would seemingly never leave. This system continued on until about the late 1990s, in the PlayStation and PSX era of video games, in other words, the fourth generation of video games.
Today, health bars or percentile's of 100 are often used. Examples of this can be seen in True Crime: LA and New York, Grand Theft Auto III, Vice City, (health bars from here on) San Andreas, Liberty City Stories and Vice City Stories and Splinter Cell are several examples of such.
In retrospect, health systems in video games have truly evolved lately, but still hold the same methods, in reality.