Why is demographic information asked during college applications? I remember that at some point there was a quota system that colleges used to get the minimum number of certain demographics into their school. I remember that this was stopped.

Why is demographic information asked during college applications?

Are they using it solely for statistics, or does the choice have an impact on the chances of getting into the school for the student that is applying?
In the United States, colleges are required to (try to) collect demographic information about their applicants and attendees, as a condition for various types of federal funding and aid.  The government uses this information to track the success of various underrepresented groups in higher education.  For the government, it is the aggregated information that is primarily important; individual students are not tracked.

However, in many cases, the schools themselves make use of the information for operating their own affirmative action programs as well.  Information about the racial and ethnic background of applicants may be used to target certain individuals, to try to draw a diverse student population to campus.  Moreover, when the new students arrive, the information can be used to connect the students to appropriate campus resources (minority student organizations, etc.).