The passport validity condition is odd in light of the fact that Schengen visas are not normally bound to passport validity (see for example my answer to the question 'Can I use the valid Schengen visa in old passport?'). Unfortunately, the European Council decision has not yet been published, so we can't readily see the actual terms of the decision itself. However, it's possible to request the document from the linked page, which I have done, and, if I receive it, I will return to edit this answer.
Without knowing the document's contents, we can say this:
If I meet all conditions but my passport validity is remaining for 2 years, then I cannot get visa for more duration? People renew the passport , so this seems like unfair to people having less remaining duration for passport.
This is indeed a bit odd and contrary to established practice concerning valid visas in expired passports. My guess is that someone on the "Press and information team of the Delegation to INDIA and BHUTAN" added this condition in the press release because they assumed it to be the case, and that it doesn't in fact apply.
If all my travels are in previous passports and I get a new passport then am I losing my travel history? I have noticed that VFS offices don't accept previous passports as part of application. In such cases should I be highlighting my travel history separately.
Probably not. The requirement of having had two visas in the previous three years doesn't say in the same passport, and, as Mark Johnson notes, the visa information system (VIS) retains records of your previously issued visas, so every consular officer will know about those visas even if you have replaced your passport. It is surely a good idea, nonetheless, to mention these visas explicitly, to reduce the chance of the consular officer overlooking them.
As jcaron points out in a comment, the fact of previous visas being used is not recorded in the VIS but is one of the requirements under the rules, making it more likely to be important to mention your travel history in the application.
Thanks are also due to Relaxed, who notes article 24 of the visa code: "The validity of the multiple-entry visas shall not be restricted by the validity of the travel document." In the context of this explicit provision, it is certainly unlikely that the new rules include a contrary provision. It is of course possible, but I continue to suspect that the press release suffers from insufficient cooperation between communications experts and subject-matter experts.
