I'll bite - it creates a sort of virtual "channel", so that all responses using the hastag are grouped together when someone clicks the tag. It allows a feed to be created, and twitter has some algorithms for displaying the "top" responses in the virtual channel.
It also allows certain topics to trend and, again, twitter uses geolocation and whatnot to make sure that the trends are (to a very loose degree) relevant to the user.
Thanks for posting that, I've never understood what the hashtag thing is all about. Now I know.