It’s a scrobbling service. You send your listening data to it so that you can see your listening habits and share them with other people (your top songs, which countries the artists you listen to are from, etc.). It’s just interesting data that some people like to collect, but if you only throw on your mp3s and don’t care about that, then you probably won’t find much use in setting it up.

Edit: to clarify what “listening data” means here, it just means the metadata of the music you play. Song name, artist, album. Nothing fancy. I think it also supports marking songs as favorites.