I've just been reading Benjamin's classic essay and wish to summarize and comment on it here as a piece of critical historical research. The Paris essay is a summary of a vast collection of quotes called 'The Arcades Project' which itself a blueprint for a different history of Paris. In this history Benjamin ignores the grand narratives and collects the detritus and refuse of the past instead, piecing it together to let it tell a story that subverts the recieved version. If the recieved story talks of great men, grand inventions and teleologiocal progress, Benjamin wants to talk about it as an apology for capitalist society. He does this by creating a different history that corrodes capitalism's centre piece: the exchange value of the commodity form. The Frankfurt scholar starts off with a quote from Maxime Du Camp: "History is like Janus; it has two faces. Whether it looks at the past or the present, it sees the same things." This sets up a resonance between the past and present that Benjamin will further exploit. I will now summarize Benjamin's work (in bold) with commentary.
The grand version of history forgets the effort that society makes to create its new inventions and forms of behaviour within a universe of illusory distraction. We can see this illusion by looking at its ideological work and separate details. Here the flaneur (wandering consumer) abandons himself to the illusory distractions of the marketplace. City dwellers need to stamp their individuality on their rooms. Commodity-producing society surrounded itself with pomp and glamour, but the Paris Commune showed it was nevertheless vulnerable. This is because newness cannot really save society so long as its inhabitants are still distracted. 
Preceeded by exhibitions of industry, world exhibitions were entertaining and educative place of pilgrimage for commodity fetishism. They taught the workers to believe in exchange value by the display of luxury goods from a world marketplace. Fashion was the ritual by which commodity fetishism demanded to be worshipped, as it made unnatural material sexy. With the emergence of the individual person (as opposed to group or class member), places of dwelling became important as private spaces. In a city lacking privacy it was here that people could sustain some illusion of it. In charge of this space, each individual collected and used art to represent their ideal universe, assembled from traces of far off places and distant memories. Their interiors became their cockpits. Yet by the end of the nineteenth century there is nowhere left to hide, so people started personalizing their offices instead.
The poet Charles Baudelaire used allegory to talk about his alienation on the streets of Paris. He was a flaneur - an intellectual grappling with the marketplace - a bohemian. Yet he couldn't rebel as he was too asocial to be anything more than an individual; in cities, individuals were now just representatives of their types. Allegory is like exchange value in its ability to compare everything, so Baudelaire added novelty to his work, but by now that too was a strategy of the commodity form.
Meanwhile Baron Haussman's despotic urban planning no longer made poor Parisians feel at home. Financial speculation drove them into the suburbs and Haussman demolished part of the city to prevent civil unrest. He was unsuccessful. As the Commune raised the barricades it broke an illusion by reminding workers that they had yet to succeed in collaboration with their masters. Finally, in 'Eternity via the Stars' the bohemian Auguste Blanqui traced out a version of society which was to be its next illusion - Paris as hell! - because "progress" really meant novelty parading as antiquity in diguise. Novelty and distraction are the hallmark of modernity, but for Blanqui they could be seen as attributes of everything sentenced to damnation.
... Benjamin's work is exemplary in some ways for the way it combines criticism with explanation and moves so smoothly between real place and events, ideas and sociological phenomena. The Frankfurt scholar goes after some big fish here (the ideological function of history, premised of the commodity form), but does so in a way that keeps things literary, fresh and interesting. There are a lot of lessons in that.