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My understanding is that people used to do that because they did not understand how resistance is affected by load. Like, it feels great when you just spin it, but the amount or resistance goes down exponentially as load increases, becoming immeasurable quite quickly.
I remember the engineers at SRAM explaining it to myself and some friends when they were getting ready to release the Omnium crankset and we were like "ooh, doesn't spin like Dura Ace" and they rolled their eyes a little because all the trackies said the same thing.
Interestingly, to me at least, for a few years a lot of track guys hacked the Omnium cranks by removing the seal, thus making the cranks spin freely, but also surely allowing debris in and thus quickly negating their intent.
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