As far as I know, this is the timeline:
R/B/Y, R/S/E and possibly Colloseum are at the same time
G/S/C happens three years after R/B/Y
XD happens five years after Colloseum
I'm not certain if Colloseum is at the same time as R/B/Y and R/S/E, since XD and Colloseum both have the same trading machine instead of a Time Capsule, but XD happens five years after Colloseum.
But it is pretty much confirmed that R/B/Y and R/S/E are at the same time.
And why Kanto didn't know about breeding while Hoenn and the Sevii Islands did?
I just think that Kanto is very primitive compared to Johto, Hoenn and the Sevii Islands and that only the highest people in rank know about the other Pokémon and breeding capibilaties, like Oak, Bill, the Elite Four, the topman of Silph Co. and Giovanni.
Either that or the people do know about the other 235 Pokémon, but that they only talk about the Pokémon available in Kanto and that they just act like the other Pokémon don't exist.
Anyway, to answer your main question:
Out-game, the people didn't think about the baby Pokémon at first and just thought them up later on.
In-game, people keep finding out that under special conditions, some Pokémon give birth to other Pokémon instead of the normal Pokémon that would come out of the egg.