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I have heard that bitcoin does have a limited smart contract and I was wondering whether this is how they created multisig wallets?

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One can consider multisig tx as contracts, especially when there is an escrow (2-of-3) service defined. It is very well described in Andreas' book "Mastering Bitcoin", chapter 7 "Advanced Transactions and Scripting". There are numerous other sources, referencing multisig. The idea of contract is based on the condition, that is executed by the operations of the scripting language on the stack. A "bullet proof" payment system must ensure correct execution of these programming activities, and as such it becomes a contract with several condition (e.g. "need 3 out of 7 signatures").

Multisig transactions are created fairly often, for example when moving bitcoins between hot and cold storage. Many exchanges do this, to increase security of funds. And within a company you generally have 4-eyes-priciples. That's what multisig is, and it even can do more.

I am not sure what you mean by limited. Bitcoin smart contracts allow for a lot of functions to be executed, allowing for many fascinating use cases. From regular, unidirectional payment channels (e.g. music streaming) up to fully fledged network with bi-directional payment channels, as we see it currently with Lightning. IMHO, limited smart contracts exist in many other crypto currencies in a way, that they are in a beginners all purpose language like java script, allowing noobs to a certain extend to have user friendliness creating "smart contracts in Turing complete machines". They then proof to be unsecure and have lost million of dollars. In this sense, and only in this sense bitcoin's smart contract system is highly limited, as it doesn't allow for such shit.

I have some more references here:

https://bitcoin.org/en/developer-examples#p2sh-multisig

https://en.bitcoin.it/wiki/Contract

https://en.bitcoin.it/wiki/Script

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Bitcoin's script language that enables smart contracts is used for everything in the technology, even single signature payments. One could say even those are smart contracts.

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