I never really understood that. Why are other companies more willing to give you a raise? Is it just irrationality by your boss?

The way I see it, you're worth more to your current company. You already know their stuff, and don't have to get up to speed. And you know the stuff you made for them well. And to them you're not an untested new hire who could flop. So in a rational economy, on average and when you're a good fit where you are, you ought to get the best offer from your current company.