I think there were two big issues involved in TSR’s actions in the 90s.
The first was simply the newness of the Internet and a lack of understanding of what it was and the potential it had for bringing people with similar interests together.
But the second bigger issue was that I think there was a disconnect between the managers at the tip top of TSR and the gaming world. The top managers at that time came from the publishing world and they treated D&D as a way to create intellectual property. Their main products at the time were campaign worlds and novels to be set in those worlds. They treated the D&D consumers on the internet like publishers of derivative product Much like JK Rowling and her war on Potter fan-fic.
Of course, D&D at its heart is not a work of fiction. It is a game, the main activity of which is having one player create an adventure in which the other players use Magic Missiles and Vorpal Blades, meet Elminster, fight Mind Flayers and explore Waterdeep. The game explicitly asks players to use D&D’s intellectual property to create derivative product and share with other people. That’s the entire point - creating your own characters, dungeons, worlds, etc. derived from the D&D products and then relating these to other people.
So, when D&D players started to use the Internet to do what they’d always done, the managers at TSR who didn’t understand the main activity associated with the products they were selling reacted with hostility. And that’s how you got They Sue Regularly.
The OGL and etc was an effort by WotC - a game company made up of gamers who knew the activity that went along with the products they sold - to regain trust of their customers who’d been alienated by TSR.