Phong shading was developed by Vietnamese computer graphics pioneer Bui Tuong Phong, who published it in his 1973 PhD dissertation at the University of Utah. It was introduced to gaming by Sega's Hikaru arcade system in 1999. Due to being very computationally intensive, it did not come into wide use until the mid-2000s. It has since replaced Gouraud shading (which in turn had replaced flat shading) as the most widely known shading technique used in modern 3D video games.
The first 3D gaming hardware capable of Phong shading was Sega's Hikaru arcade system in mid-1999, with the Hikaru's debut title Brave Firefighters (1999). For the next several years, the very expensive Sega Hikaru arcade system was the only gaming hardware powerful enough for extensive use of effective Phong shading, with games such as Planet Harriers (2000). Because home systems at the time did not have hardware-level support for Phong shading, most Sega Hikaru arcade games were never ported to home systems, with the exception of Cyber Troopers Virtual-On Force (2001) which was ported much later to the Xbox 360 console in 2010, by which time Phong shading was the norm on consoles. The first home video game with some very limited Phong shading was the late 1999 Sega Dreamcast console game Space Channel 5, to give a slight shine to Ulala's outfit.
Phong shading was eventually introduced to PC gaming with ATI's Radeon 9700 graphics card. However, Phong shading was still rarely used in PC gaming after that because it was very computationally intensive. Doom 3 (2004), for example, used Blinn-Phong shading, a less-intensive approximation of Phong shading, rather than true Phong shading; Half-Life 2's Source Engine did not support Phong shading at all until the release of Half-Life 2: Episode One in 2006. It was around 2005 that Phong shading began gaining popularity, with the release of Microsoft's Xbox 360 console and more powerful PC graphics cards.
Phong shading is today evidently used in most modern 3D graphics engines, including Crytek's CryEngine series, Valve's Source Engine, Epic's Unreal Engine 3 & 4, Square Enix's Luminous Studio, and Kojima Productions' Fox Engine, among others.