It reduces the cost of training for the observer. I highly encourged my students to both observe other students as well as allow their flights to be observed.
I found through personal experience, that students that spent time observing (both on flights with me and with other CFIs), picked up concepts much quicker. Likewise, I found that by observing, I could generally cut off a few hours of training prior to solo, and roughly 10 hours over the entire course of training.