It allows archived files to be treated as an extension to the normal file system. So you can use MC to explore the contents just as though it was a part of the file system. MC VFS also extends to things like FTP, so you can view a remote site as though it were part of the local filesystem.
V-Com's PowerDesk for Windows does the same thing with archived files (Zip files, for example). I guess I just take it for granted that a file manager should do that.