Play hooky, 'be absent from school without an excuse', is an Americanism first recorded around 1848. Bartlett's Dictionary of Americanisms gives this slightly later example: "He moped to school gloomy and sad, and took his flogging, along with Joe Harper, for playing hookey the day before." (Mark Twain, Tom Sawyer) And here's another example showing the extended use of the term: "I played hookey from the Appropriations Committee this morning." (Harry Truman, Dear Bess)
Play hooky is probably derived from the Dutch term hoekje (spelen) 'hide-and-seek'. The Dutch word hoek means 'corner'-- the boys in 17th-century New Amsterdam played this game around the corners of the street. Hide-and-seek was a different game back then--the players had to search for a hidden object. Although play hooky originally referred to the game of hide-and-seek, it also had other meanings in the 17th and 18th centuries. It wasn't until the 19th century that schoolchildren began using play hooky to mean 'skip school.'
It's also been suggested that play hooky comes from the verb hook, euphemistically meaning 'to steal', or from the phrase hook it, meaning 'to escape, run away, make off'. These derivations are unlikely-- the Random House Dictionary of American Slang points out that the term hook it was not used in the United States until after 1848.
Play hooky was originally slang, but now, of course, it's standard English. But you're right in noting that the term isn't used very much anymore.