Pali, a Middle Indian language, was close to Magadhi, the language of Magadha. It is believed that the Buddha used Magadhi in his teachings. By using the vernacular instead of Sanskrit which was understood only by scholars, the Buddha was able to make his teachings popular.
Pali originally meant "line", i.e. the line that separated an original text from the commentary that was written underneath. The text would be called "Pali-bhasa", a term that was later used to name the language in which it was written. Pali was carried by missionaries at some stage to Ceylon (Sri Lanka).
The Pali Canon is based on oral tradition, containing the teaching of the Buddha. Thus Pali became the canonical language for Buddhists from several countries such as Sri Lanka, Thailand, Myanmar and Cambodia. The irony is that the citizens of these countries could not read Pali. It was not until the Canon was translated into the vernaculars could ordinary people read the scriptures for themselves.
In the 19th Century, Western scholars like Dr and Mrs Rhys Davids, who founded the Pali Text Society in 1881, started translating the Pali Canon into English and made it available to the English-speaking world.
Pali has become the sacred language of the Theravadins since the Pali Canon itself and the commentaries on it were written in the language. In Sri Lanka, Sinhala is the mother tongue of the Singhalese, not Pali. Sanskrit is the preferred language for Buddhists of the Mahayana traditions. By adopting Sanskrit, writers of Mahayana Buddhism were able to reconnect with Hindu scholarship.
I think it is good to preserve Pali for the sake of preserving Buddhist studies. How can a language be preserved unless it is taught and spoken? Well, it is no longer spoken but it can still be protected from becoming completely extinct as long as it is valued as a language of religion, like Sanskrit, Latin, and Classical Arabic. One way is to offer it as a subject in the monasteries and universities so that monks and scholars can still learn it in order to understand the old scriptures written in Pali.