Would you really want to have to reinstall a digital game that was 30-50 GB in size? It's about not having to sorry about storage space. As the generation goes on, we could potentially see games break that 50-GB threshold, and who wants to only be able to keep 5-10 games on the console when your library is 20-30 games in size? It's a matter of convenience.
The other side of it is portability. If you keep games on an external, then you could unplug, go to a friend's with your game, and not have to do any installation.