The Iliad, like all other classical Greek literature, was thought of as a Sacred moment in time rather than a particular group of words in a particular order. A given performance of all or part of the Iliad was meant to express that moment, and the particular way it was expressed was less important and not meant to be exactly repeated in exactly that way ever again. All classical Greek public literature was like this, the tragedies, the choral song-dances, they were there to express Sacred moments and they were never intended to be repeated in exactly that form again. The Sacred moment was eternal, the form in which it was expressed was momentary. This is classical Greek culture and it is the opposite of the culture that followed it, represented by Plato and Aristotle.
It has long been recognized that the Iliad was "orally composed." That is, it was composed while in the act of presenting it, by an oral poet who had a vast number of stock phrases in the proper meter at his command, and who strung these phrases together in the same way that we use our normal unmetered words and phrases when we speak. The oral poet would use these stock phrases to make a narrative that preserved all of the Iliadís essential points and preserved the nature of its characters, but which would vary somewhat at each telling. Such orally composed literature can be found in many parts of the world, but the Iliad is much more finished than typical oral literature, and this would be because for part of its development it was influenced by writing.
The Iliad began with real events, which were then passed down through various orally composed songs. It apparently became the Iliad as such when an oral poet, an aoidos (singer) named Homeros (Homer), told the story so well that this way of telling the story became in some way canonized, and all poets after him to some extent followed him in this way of telling the story. We can only guess what aspects of the story were defined by Homer and what the story was like when told by him.
Then writing became important, and the aoidos (singer) became a rapsodos (stitcher of songs). The rapsodos might be literate or he might have access to written sections of the Iliad made by people who were, and so the metered phrases of a few words the aoidos had used now became whole sections many breaths long. Most of the surviving fragments of the Iliad from around the classic period are too short to reflect this, but compare The Contest between Homer and Hesiod, 321 with Iliad, XIII, 126-133 & 339-344. The fragment in the Contest is missing a block of over two hundred lines that our text has, and it makes sense without it. Further, the Contest has three additional lines that our text doesnít. This is stitching, and it is clearly what the "stitchers of songs" did.
The rapsodoi were directed to keep their creativity in check at the Panathenaic Festival, and to present the story as a whole in a specific order. But that version was probably of a manageable length and designed to give the listener the story in one long hearing, much like the Icelandic epic, Volsungasaga. Normally the rapsodoi presented only fragments of the story at a given hearing, and the text we have now was probably descended from a catalogue of some of the best poetry that had been created in these short presentations, rather than from something that could be presented at the Panathenaia. When the classical mentality changed into something that valued form over substance, the Iliad had therefore to become an object, a group of words arranged in a certain order.
The question now arose, "Which object constitutes the Iliad?" And here was this catalogue. A written copy of the Panathenaic version would be a possible answer to that question, but there would have been no need for more than one or two hand-written copies—for a version that was presented only once every four years. Whereas the catalogue was referred to by everyone who either presented or was concerned with the short fragments of the Iliad that could be heard daily, and there would have been many, many copies. And so when the Iliad had to become an object, this catalogue had to become the Iliad. And that is why our present Iliad is so long and digressive, and not in the best form for presenting the story.
But when the Iliad was in its creative period, it was not an object of any sort. It was a moment in time, and anyone who wanted to tell the story had to be aware of and refer directly to that moment and not to words or objects. Whenever Homer deals with the question of where the songs come from, he specifies that they come from the Muses or from "God" the two are interchangeable. And the Muses can give us the song, because they are "present alongside"(pareimi) and they "see everything," (Iliad, II, 485-486.) The Muse is the moment in time that the poet perceives. She is not an object; she is real. She cannot be defined, she cannot be owned, she cannot be grasped as with the hand. She can only be expressed, and she can only be expressed by someone who perceives her. Only when people stopped listening to the Muse were they able to see the world as a kaleidoscope of objects, and songs became groups of words in particular orders.