CSS1 was mostly about typography, but CSS2 supports layout equivalent to (or rather a superset of) what is possible with HTML tables.
Here's a simple task you can't do in CSS2: Create a multi-line form where the labels are right-aligned to the fields, the fields all line up, and everything expands to fill the contents.
<style>
label { display: table-row; }
span { display: table-cell; }
</style>
<label><span>Label:</span>
<span><input type=text></span></label>
<label><span>Longer label:</span>
<span><input type=checkbox></span></label>My bad, didn't check my facts, table-cell is in CSS2! Of course, in my defense, it doesn't matter which standard it's defined in if it isn't supported by IE. It isn't even supported in IE7 and we've just recently dropped support for IE6.
I spent a few hours reading old RFC's because of this whole thread.
It looks to me like rfc 1942 got popular, and the CSS folks never came to grips with that. CSS1 is pretty given the constraints of the day. I think about CSS in two terms (I don't think there's a standard for this, i just made them up) Formatting, setting fonts, colors and padding; and layout, i think old newspaper guys would call it paste up, where the big blocks go on the page.
CSS is great at formatting. It sucks at layout.
This was their approach to layout, http://www.w3.org/People/Bos/Stylesheets/model.html
Mosaic had support for tables five months before that, http://www.eskimo.com/~bloo/indexdot/history/mosaic.htm
They must have known, and i don't think they had a credible solution to layout problems. they weren't willing to make a full layout language, so tables won.