An instrument "in C" means that the note that is written is what you hear when you play that note. Flutes, oboes, bassoons, violins, cellos etc all do this.
Transposing instruments don't do that... so a "Bb" instrument means that if you finger "C" you hear a Bb.
The reason for this is as Kev said: a)you keep the fingering the same on all pitches of instrument so that a written 'F' for example has the same fingering on all instruments, BUT the note that sound sis different. This is handled by writing the music in a key that adjusts for this - this is what is meant by transposing. b)you associate the fingered note on the instrument with the note that is sounded. So on a tenor, we would have to move the labelling of all of the notes by a tone, so C = Bb etc.There's no reason to not do this - it would mean learning two sets of names for notes for given fingerings.
On balance, people decided that option 'a' was preferable.