Just quoting FB's wording and my hunch. As the other commenter gave an example, if you have a niche product which only a fraction of people would be ever interested in, it would help if you can know who those are, and restrict targeting to them.

I can search for knitting needles or be viewing a knitting post on Instagram. If an artisan needle seller wants to target his product it doesn't help targeting people who are not interested into artisan stuff. So to maximize the ad budget impact the ads are better left targeted specifically to people who have a higher likelihood of buying artisan stuff. This problem doesn't affect some mass market knitting needle seller.