The International Astronomical Union (IAU) downgraded the status of Pluto to that of a dwarf planet because it did not meet the three criteria the IAU uses to define a full-sized planet. Essentially Pluto meets all the criteria except one- it “has not cleared its neighboring region of other objects.”
In August 2006 the International Astronomical Union (IAU) downgraded the status of Pluto to that of "dwarf planet." This means that from now on only the rocky worlds of the inner Solar System and the gas giants of the outer system will be designated as planets. The “inner Solar System” is the region of space that is smaller than the radius of Jupiter’s orbit around the sun. It contains the asteroid belt as well as the terrestrial planets, Mercury, Venus, Earth, and Mars. The “gas giants” of course are Jupiter, Saturn, Neptune, and Uranus. So now we have eight planets instead of the nine we used to have.

What is a Dwarf Planet?

A “dwarf planet,” as defined by the IAU, is a celestial body in direct orbit of the Sun that is massive enough that its shape is controlled by gravitational forces rather than mechanical forces (and is thus ellipsoid in shape), but has not cleared its neighboring region of other objects.

So, the three criteria of the IAU for a full-sized planet are:

It is in orbit around the Sun.
It has sufficient mass to assume hydrostatic equilibrium (a nearly round shape).
It has "cleared the neighborhood" around its orbit.
Pluto meets only two of these criteria, losing out on the third. In all the billions of years it has lived there, it has not managed to clear its neighborhood. You may wonder what that means, “not clearing its neighboring region of other objects?” Sounds like a minesweeper in space! This means that the planet has become gravitationally dominant -- there are no other bodies of comparable size other than its own satellites or those otherwise under its gravitational influence, in its vicinity in space.

So any large body that does not meet these criteria is now classed as a “dwarf planet,” and that includes Pluto, which shares its orbital neighborhood with Kuiper belt objects such as the plutinos.

History of Pluto

The object is formerly known as the planet Pluto was discovered on February 18, 1930, at the Lowell Observatory in Flagstaff, Arizona, by astronomer Clyde W. Tombaugh, with contributions from William H. Pickering. This period in astronomy was one of intense planet hunting, and Pickering was a prolific planet predictor.

In 1906, Percival Lowell, a wealthy Bostonian who had founded the Lowell Observatory in Flagstaff, Arizona in 1894, started an extensive project in search of a possible ninth planet, which he termed "Planet X." By 1909, Lowell and Pickering had suggested several possible celestial coordinates for such a planet. Lowell and his observatory conducted the search until his death in 1916, to no avail. Unknown to Lowell, on March 19, 1915, his observatory had captured two faint images of Pluto, but they were not recognized for what they were. Lowell was not the first to unknowingly photograph Pluto. There are sixteen known pre-discoveries, with the oldest being made by the Yerkes Observatory on August 20, 1909.

The search for Planet X did not resume until 1929 when the job was handed to Clyde Tombaugh, a 23-year-old Kansan who had just arrived at the Lowell Observatory. Tombaugh's task was to systematically image the night sky in pairs of photographs taken two weeks apart, then examine each pair and determine whether any objects had shifted position. Using a machine called a blink comparator, he rapidly shifted back and forth between views of each of the plates to create the illusion of movement of any objects that had changed position or appearance between photographs. On February 18, 1930, after nearly a year of searching, Tombaugh discovered a possible moving object on photographic plates taken on January 23 and January 29 of that year. After the observatory obtained further confirmatory photographs, news of the discovery was telegraphed to the Harvard College Observatory on March 13, 1930.

The discovery made headlines across the globe. The Lowell Observatory, which had the right to name the new object, received over 1,000 suggestions from all over the world; the name Pluto was proposed by Venetia Burney, an eleven-year-old schoolgirl in Oxford, England. Venetia was interested in classical mythology as well as astronomy and considered the name for the god of the underworld appropriate for such a presumably dark and cold world. She suggested it in a conversation with her grandfather Falconer Madan, a former librarian at the University of Oxford's Bodleian Library. Madan passed the name to Professor Herbert Hall Turner, who then cabled it to colleagues in the United States. Pluto officially became Pluto on March 24, 1930. The name was announced on May 1, 1930, and Venetia received five pounds (£5) as a reward.