It's trying to solve a bunch of different, slightly overlapping problems. Some examples:
* provide an identity document that's hard to forge. Some states, Hawaii famously, had IDs that were ridiculously easy to forge.
* reduce expiration times so that identifying details aren't decades out of date. Some states (e.g. Arizona) issued IDs with 50+ years of validity.
* require actual verification of identity at issuance
* include SSN details. I have no idea why this was a thing and it's since been removed from the actual federal requirements, but most states require original social security documents to be provided during application.
* to establish residency at a particular address.
If it were just identity and residency, states would accept things like voter registration as sufficient. Yet many states (e.g. California) do not.