I would still like to know why this has to be done
Well because the server creates a random password when you install smeserver-joomla contrib. And this command shows this random string which you copy into the setup.
Well why has to be done?
Because someone could hack your php website and get your password and then inject other commands trough mysql. This is why dungog's contribs make a user with random password and minimal privileges.
And this is the way to do it.
You have to create a user with minimal privileges (only ones that need to be enabled and only for the site it uses) and a random password.
The most stupid thing would be to create a power user (with all privileges) and give him global rights and then install a script into ibay with this user's name and password.
And here is a good MySQL for Dummies
http://dev.mysql.com/tech-resources/articles/mysql_intro.html#SECTION0002000000This explains exactly what i have told you (I found this just after i wrote that text).