VHS was bad quality, DVD had good enough. The jump from bad to good enough has a much better impact then from good enough to amazing. While most people will make the switch to go from bad to good enough, not many will make the effort to switch from good enough to amazing, unless they are pushed in that direction.
The jump between vinyl and CD was also massive, but vinyl was still good enough. what CDs had though over the massive sound quality improvements was the added convenience of playing specific songs, not needing to turn it over, or play on the move in your car/walkman/etc, and added features such as easy skipping, shuffle, ripping, etc.
I would wager that it were those extra features + added convenience (and the cheaper price) which got people to switch to CDs over the massive improvements of sound quality. Blu-Ray had exactly the same features as DVDs (until publishers artificially decided to skip adding extra content on their DVD releases), were exactly as convenient to playing DVDs, but were more expensive. So I think for most people it simply wasn’t worth their time to upgrade from if all they got was to bump their picture quality from good enough to amazing.
DVDs and VHS are more or less the same resolution. And depending on encode quality some DVDs can be even worse, although unlikely to be a problem for mainstream releases.
This is an overly reductive argument. Resolution is only a relatively small part of the quality. Generally people value sound quality much higher, which DVD brought to CD level, and Blu-Ray has exactly the same sound quality (nobody has speakers for the 7.1 surround sound). VHS also had interlacing, and older VHS also had plenty of the tape artifacts polluting the image, DVDs had none of those.
At the end of the VHS era (when DVDs had already been available for years) maybe you had a good enough (picture) quality on the first few plays of the tape (which you still had to rewind etc.), but at the same time you could go to your local video rental get a 5 year old DVD that had been played hundreds of times, had the same (or slightly better) picture quality, much better sound quality, no need to rewind, and tons of extra features.