When William the Bastard beat us at Hastings, he took possession of every bit of the land, by right of conquest, as was the custom, and as rulers had before him. He rewarded his supporters by giving them chunks of it, but retained overall control - he could take it back from anyone who fell foul of him. Generations of rulers did the same.
The rulers were responsible for maintaining law and order and financing public works throughout the kingdom, through their appointed deputies, and for raising the money for wars. They paid for this from the income from their lands, and from ad hoc taxes imposed when money was tight, for specific wars and so on, and maintained themselves from the same sources.
When George I succeeded to the throne, the monarchal funds were not in a good condition, so a deal was made that the Crown Lands which were still in the King's possession would be handed over into state control in return for regular payments from a "Civil list" (as distinct from the army and navy lists). The state would then administer the Crown Lands and use the surplus income as it wished.
There is an annual profit of £240.2 million, as at 31 March 2012.
The official reported annual cost to the British public of keeping the Royal Family was £41.5 million ( The DM says *69p a year per person*) for the 2008-09 financial year. However, this figure is disputed since it does not include the cost of security provided by the police and the Army, the lost revenues of the Duchies of Cornwall and Lancaster and other expenses.
The Duchy of Corwall was created by Edward III in 1337 to provide an income for his son Edward, later the Black Prince. Ever since then, it has passed from one Prince of Wales to the next. I suspect part of the reason was to keep him in funds and less likely to hasten his father's demise. At any rate, it gave him a business base to keep him from being idle and in mischief, (as it still does. without it Charlie would feel even more strongly that he is "running out of time" )
en.wikipedia.org/wiki/Crown_Estate
en.wikipedia.org/wiki/Finances_of_the_British_Royal_Family
en.wikipedia.org/wiki/Civil_list