In 1927, Rolex began issuing every Rolex Oyster case a unique serial number to distinguish them from one another. This numbering system is believed to have started at 20,000. Around 1953, the numbers reached the 999,999 mark, at which time Rolex decided against adding a 7th digit, thus continuing into the "millions"—Instead, they started the sequence over. While it was originally believed that this resequence started over at 100,000, or even 20,000, evidence suggests that it actually restarted at 10,000 or possibly lower.
Around this same time, Rolex had initiated another dating system —They stamped the inside of the case back with a code consisting of a Roman numeral and two numbers. The Roman numerals were I, II, III, IV, which represented which quarter of the year the watch was produced. The numbers simply represented the two-digit year in which the watch was produced. Therefore, the code III 53 would represent the 3rd quarter (i.e. July-September) of 1953--this code continued until around 1970.
In the early 1960s, Rolex once again reached the 999,999 mark, but this time added a 7th digit and continued until mid 1987, when the numbering reached 9,999,999. At this time, Rolex elected to start numbering with a letter prefix (e.g. R000001).
The system started with the letter "R", which was then subsequently followed by L-E-X. Thus spelling out the word "ROLEX" with the "O" being omitted, to help avert any possible confusion with the number "0". This sequence continued through November 1991, when a new numbering system was introduced utilizing the letters N, C and S, which took them through 1993. In 1994, Rolex started yet another sequence with the letters: W, T and U, then A, P, and K in subsequent years.
To add to the confusion, many of these prefixes have run concurrently over the past few years, giving the appearance of a random numbering system. Therefore, only Rolex knows exactly when any particular watch was made and they aren't talking.