The theory is that the inspector is going to find problems, and the seller wants to take advantage of those problems, to give the buyer a discount, to motivate buying. If the discount is given in the form of money for repairs and improvements, then the buyer can't ask for a last-minute additional discount to pay for whatever the inspector finds, because that will be paid from the repairs/improvements money. In other words the whole scheme is a way to put the repair costs up front, as a discount when the buyer is first looking at the house, so the buyer will take it into account when comparing houses. Another house that needs the same repairs, but doesn't have any such discount up front, might be perceived by the buyer as not being as good a deal, because of the hassle of negotiating the repairs while under contract.
But what about the mortgage lender? Would this kind of deal cause them too much confusion and stress?
Read more: Can a seller offer money for repairs and improvements, without causing problems with the mortgage?
