Answer by taking a quote from the following article:

Monroe was born on his family's farm near Rosine, Kentucky, the youngest of eight children of James Buchanan "Buck" and Malissa (Vandiver) Monroe. His mother and her brother, Pendleton "Pen" Vandiver, were both musically talented, and Monroe and his family grew up playing and singing at home. Bill was of Scottish heritage. Because his older brothers Birch and Charlie already played the fiddle and guitar, Bill Monroe was resigned to playing the less desirable mandolin.

Monroe's fortunes began to improve during the "folk revival" of the early 1960s. Many college students and other young people were beginning to discover Monroe, associating his style more with traditional folk music than with the country-and-western genre with which it had previously been identified. The word "bluegrass" first appeared around this time to describe the sound of Monroe and similar artists such as Flatt and Scruggs, the Stanley Brothers, Reno and Smiley, Jim and Jesse, and the Osborne Brothers. While Flatt and Scruggs immediately recognized the potential for a lucrative new audience in cities and on college campuses in the North, Monroe was slower to respond. Under the influence of Ralph Rinzler, a young musician and folklorist from New Jersey who briefly became Monroe's manager in 1963, Monroe gradually expanded his geographic reach beyond the traditional southern country music circuit. Rinzler was also responsible for a lengthy profile and interview in the influential folk music magazine Sing Out! that first publicly referred to Monroe as the "father" of bluegrass. Accordingly, at the first bluegrass festival organized by Carlton Haney at Roanoke, Virginia in 1965, Bill Monroe was the central figure. The growing national popularity of Monroe's music during the 1960s was also apparent in the increasingly diverse background of musicians recruited into his band. Non-southerners who served as Blue Grass Boys during this period included banjo player Bill Keith and singer/guitarist Peter Rowan from Massachusetts, fiddler Gene Lowinger from New York, banjo player Lamar Grier from Maryland, banjo player Steve Arkin from New York, and singer/guitarist Roland White and fiddler Richard Greene from California.

Why was he called that?
The word "bluegrass" first appeared around this time to describe the sound of Monroe