It serves two purposes on a PeerTube instance: it ensures all videos can be played optimally in the web interface, and it generates different resolutions for the same video.
Organize videos in public or private <a target="_blank" rel="noopener noreferrer" href="https://docs.joinpeertube.org/use-library?id=video-history">playlists</a>
It's the reason why we encourage developers to use the <a target="_blank" rel="noopener noreferrer" href="https://docs.joinpeertube.org/contribute-plugins">PeerTube plugin API</a> to create their own monetization system.