1) That's probably a perfectly reasonable option for my grandma. *

2) It provides Apple a fallback when some idiot loses 6 figures worth of IP. “We understand sir, you see, if you had chosen to backup your recovery key with us we would be able to help you”

* or would be, if the NSA wasn't spying on everything.

This is fine, since you have the option to decide. For most people it's okay to store the key on Apples servers. You are still protected if your computer is lost/stolen, for example.

And if you want to be safe from the government, just select "No".