Sometimes you ask the student for the answer to an applied question, and they only give two significant figures. This (in context) does not give you sufficient information to decide if they are correct, and actually they are marked incorrect. So, while they have done everything correctly the student gets penalised on a technicality.
Using this option allows you to reject the answer as being invalid because there are insufficient numbers of significant figures. The student (who has the calculation in front of them...) can type in a couple of extra places and demonstrate they can do this problem. Even if the question says "give your answer to 4 significant figures", (or the student should know from the context) people often forget. If sig figs/dps isn't the point of the question I think this can be unfair. But it is up to the teacher in context to decide.
Not what you are looking for here, but a very useful addition to the STACK validation functionality for physics, stats and applied maths.