The reason that 120v service was chosen, was economic. Originally electricity was delivered to homes, and most businesses, for a single purpose and that was lighting. Can openers, TVs, washers, dryers, electrical factory machinery, etc. came later. At the time the most cost effective form of light bulb was a carbon filament bulb that operated best (optimally) at 100v to 110v. This, adjusted for transmission voltage drop, set most supply lines at 120v.
Supplemental and Related Information:
By the time cost effective, and higher voltage, metal filament bulbs were brought to the market, most of the cities in the USA were already running 120v supply lines. Europe was just starting such systems and opted for higher voltage supply lines.
Higher voltages are used for long-distance transmission and power distribution because more power can be transferred over the same size wire at a higher voltage (lower current). Power generation plants often use voltages in the hundreds of thousands, 115,000 to 165,000 of volts to move power over long distances. For lines of up to 20 miles long around a city, 2400 volts works well to reduce the voltage loss in the wires.
In the United States, the electrical power lines going to residential streets and roads are operated from 2300 to 2400 volts. With a 2400 volt supply, it is very convenient and easy to design and build pole transformers that have a 10-to-1 step-down ratio, thus providing 240 volts to the houses. The transformers also have a center tap to provide 120 volts from each 240-volt leg to the center point. This center point tap also provides a convenient point for a grounding connection. The actual measured voltage in your house receptacle circuits will normally be 120 to 125 volts. All appliances are rated for the minimum operating voltage (110-115), thus there is much confusion about the actual level of the supply voltages.