Scientists have long known about the existence of renal cilia; however, they felt up until the past decade or so that they were a "vestigial organelle" with no function. What changed? First, with the cloning and characterization of the two main genes for autosomal dominant polycystic kidney disease (PKD1 & PKD2), it was determined that the proteins which they encode localize in part to the cilia. Furthermore, a number of other rare pediatric diseases of cystic kidney formation (e.g., Bardet-Biedl Syndrome, nephronophthisis, ARPKD, etc) are also caused by mutations in genes which play an important role in the cilia.
Exactly how a loss of cilia function might result in cyst formation is still under investigation, but the current dogma states that as urine flows down the tubule, it bends the rigid cilia forward, thereby sending a signal to halt proliferation; if the cilia are not present, the signal is not sent, and cells continue to proliferate. This is a gross simplification, but this is the ciliary hypothesis in a nutshell.