Someone sent me a link to that question on Twitter. I would like to add 
a more historical view of things, mostly repeating things Lua author 
Roberto Ierusalimschy said at Lua Workshop last month.

During the development of Grim Fandango at LucasArts, Bret Mogilefsky 
found out that SCUMM, the scripting language they had been using in 
their previous aventure games, would not be powerful enough for what 
they needed to do.

He had read about Lua in a Dr Dobbs article, liked it and decided to 
use a heavily modified Lua 2.5 for the game. He actually used 
coroutines, which were added to Lua in version... 5.0!

The game was released in 1998 and would have become the game of the 
year if a little known game called Half Life had not stood between it 
and the trophy :)

The next year, at the Games Developers Conference, there was a panel on 
scripting. Panelists were discussing options: Java, C++ (!), not using 
a scripting language at all... Bret, in attendance, stood up and asked 
why not just use Lua. And just like that, 200 of the world's top game 
developers had been exposed to the language.

Sources:

http://www.lua.org/wshop13/Ierusalimschy.pdf
http://www.grimfandango.net/?page=articles&pagenumber=2