The OS puts menu items and icons in that bonus space, freeing up _more_ of the uninterrupted rectangular main body of your screen for your apps.
I think if you go into fullscreen mode with an app, it'll blank out the area to either side of the notch and just use the main screen space (or maybe that's configurable for notch-aware software to decide? IDK)
I also suspect that the design was intended for Face ID, but that obviously hasn't happened yet. I'd keep touch ID, thank you very much.
That notch is a very clever way to expand the size of the screen without increasing the size of the case. There is very little downside. that middle part of the menu bar is not used by most apps. When there are more menu items, the system automatically skips over that notch.