I just learned from the paper why the vast bulk of the Sherlock Holmes tales are short stories, rather than longer works:

And when English author Arthur Conan Doyle ... chronicle[d] the exploits of Sherlock Holmes, he did it largely through brief adventures written for magazines bought by railway commuters: It iook about the length of a train jouney from London to the suburbs, it seems, to read one of Doyle's colorful, tightly constructed puzzles.

That's why they made/make such wonderful radio shows, too.

What other great works of fiction started as short stories or serials written for magazines or newspapers?

Well, most of the works of Dickens were serialised in magazines. This is part of the reason why adaptations of his books for TV are often successful. They include "cliff-hangers" at intervals that lend themselves perfectly to re-serialisation.

Three masters of the short story are: E A Poe (who is sometimes credited with being the inventor of the genre), O Henry, and James Joyce.