Instapaper started as a web site, which as far as I know spread by word of mouth. I was following him on Tumblr at the time, and spread his link right away. Remember that Marco's the second employee at Tumblr, which has an audience of nearly 2 million. Not all of them read what Marco's got to say, but a lot of them do. To make a really hasty judgment: I run tumblelogs with fairly high follower counts, and I know that like/reblog conversion is fairly low; judging by how popular his posts get, I'd imagine he's got an audience of a few thousand on Tumblr alone, and then all the people that read his blog via RSS, which isn't as easy to track.

Instapaper had one of the easiest sign-up processes I'd ever seen (when I designed notadouche.com, the goal was to one-up his sign-up), it was really simplistic, and it was free. The iPhone application came a year after Instapaper's site, so he already had a built-in audience. Then Instapaper became one of the top apps on the iPhone, reputation-wise, it introduced tilt scrolling to the design scene, and so Marco's become one of the "in" bloggers that gets quoted by John Gruber and Andy Baio and their enormous crowds. At some point he was picked up by Fusion Ads, but that was way later, after they'd started their strategy of placing advertisements on iPhone apps.

Marco's written multiple times about how he refuses to "network" on his blog, and how he refuses to promote what he writes in any way. http://www.marco.org/166210052