To allow for a live avatar. For example when playing Mario Kart online you can see the reactions of your friends your playing with. When you hit someone with a red shell and they make a mad face, you get to see it.
Microphones have been in gaming for a while, this is just the next step.
Now... Is any of that necessary? No, not really. Is it kinda neat? Maybe for some.
You also have to keep track the site and how you spell it. For example is it "Microsoft" or "microsoft"?
And keep track of the current name of the site vs the old name. For example am I signing into Microsoft or Live.com or Xbox?
And keep track of my username. Is it my email? Which email? Which username?
I understand the concept but I think if falls apart fast.