AFAIK it's so that people can upload files larger than 4 MB, though the default is usually 1.
It's useful if you want people to upload 'large' files. On one server I have that set (in PHP actually) to 32 MB because I upload fairly large music files, though they're usually not that large.
It should be set at the lowest value you expect to not cause users issues. You can also indicate that there's a maximum upload size somewhere, assuming this is public-facing (or even user-facing).