When the MPAA ratings were introduced in 1968, the letters were G, M (for Mature), R and X. M did carry the description “Suggested for mature audiences; parental discretion advised.” In 1970 M was changed to GP, with the official tagline “All ages admitted, parental guidance suggested.” (I suppose placing the G first was a way of associating the rating more with G than with R, but I don’t have any evidence to verify that.) PG was adopted in 1972.
The idea behind “parental guidance” was probably that parents would read newspaper and magazine reviews of a film to get an idea of its content, or perhaps use the recommendations of religious periodicals that reviewed films. GP/PG, at this point, was still given much more frequently to critically respected movies that weren’t just intended for families/kids–for example, Cabaret, The Sting and Young Frankenstein were all PG. Admittedly, some PGs back then had content more equivalent to a PG-13 today, since that rating didn’t come about until 1984. And the grey area between G and R was perhaps more amenable to parental guidance before PG-13.