But if the authentication server gets the plaintext password, it can validate it against the old CRAM-MD5 storage, see that it matches, and then update the storage to SCRAM-SHA-1 on the fly. The entire process is invisible to the user, who gets a security upgrade in the process.
There's another class of use-cases, where a service needs to authenticate a user based on a token from another service. But for this, it's better to dispense with passwords entirely and instead go to something like Kerberos, where the authentication service gives you tokens in lieu of any password information.