It's a feature more geared to customers in the enterprise/commercial space, but this is directly from the Apple's
iOS Deployment for Enterprise documentation
"This restriction prevents managed apps from backing up data to iCloud or iTunes. Disallowing backup prevents managed app data from being recovered if the app is removed via MDM, but is later reinstalled by the user."
People will set this for apps that they don't want users to be able to restore the app on a different device (see: unmanaged) that's tied to their same Apple ID. When restored on a different device, they'd also get all the app data tied to it, and admins very probably don't want to allow access to that data on unmanaged devices.
