The final episode had 10 million+ viewers, as per the link in the first post in this thread.
It was a very slow burn, which might be why you think it never pulled in the numbers. It's never "headlined" Christmas Day, the original Christmas special going out on Christmas Eve, I believe the first time a new episode went out on One, with Series 1 and 2 debuting on BBC Three then BBC Two.
It was on Christmas Day the following year, but at 10pm after a Royle Family special. It wasn't Christmas themed, just the penultimate regular episode.
Yes, and it got 9.2 million on Christmas Day - http://news.bbc.co.uk/1/hi/entertainment/8430815.stm
- and earlier in that series it had 5.8 million, comfortably winning its slot - https://www.theguardian.com/media/2009/dec/11/tv-ratings-gavin-stacey
As you say, the first two series were on BBC3 (with BBC2 repeats) so they were never going to get huge audiences, but it was a show that caught on via repeats and word of mouth, indeed very much like The Royle Family ten years earlier, it was selling truckloads of DVDs at the time as well. And I see it's in the Netflix Top 10 this month as well, for what it's worth.
18 years isn't considered a long standing tradition?
Even before that the schedules were full of repeats of Christmas specials from yesteryear. There is a lot of nostalgia at Christmas, and Gavin & Stacey is absolutely perfect family fodder for Christmas day.
There have been absolutely loads of revivals of old comedies, more or less since telly began. Whatever Happened To The Likely Lads is the obvious example, and even in the seventies series like Steptoe and Son and Till Death Us Do Part returned after extended breaks.
And the Beeb's big Christmas attraction in 1972 was a Goons reunion!