Why does "for health" Tai Chi exist in the first place?

I apologize if this comes off as a bit of a rant.

I spent a short time practicing Wu-style before realizing that the class was strictly "for health" with no emphasis on the combative aspect of Tai Chi Chuan. I've just begun studying Yang-style under a teacher who has a "for health" bias but also encourages pushing hands and applications practice, which is refreshing. The common idea of Tai Chi Chuan is just the "for health" aspect, and people generally don't understand the difference when they see Qigong, Tai Chi Chuan, or Yoga. In fact, the view of it being a combative martial art is lost to most, save for the martial arts enthusiasts.

I just don't understand how Tai Chi Chuan can go from Yang Lu-chan being some sort of undefeated fighter using Tai Chi Chuan to retirement home exercise in less than 200 years. When did Tai Chi stop commonly being about how to fight and more about light exercise and spirituality? Why? Is it just this way in the West, or is it the same in China?

And why is it acceptable for someone who can't demonstrate any use of their martial art in a fighting environment -- or even a demonstration -- to teach their martial art?