One of the great advantages to this is that plugin developers can keep their plugin separate from their WordPress installation. This is a boon for developers with multiple installs who want to test compatibility; keep in mind that you can symlink the entire plugins directory if you're testing multiple!
Basically, if you're a plugin dev, you no longer have to update your files across multiple local installs; you can simply keep your plugin files in one place, and symlink that plugin to any local install you're testing on.
Another alternative to this is to develop in a local multisite install. Not suitable for every scenario, but good enough for 90% of sites in my experience.
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From the link:
One of the great advantages to this is that plugin developers can keep their plugin separate from their WordPress installation. This is a boon for developers with multiple installs who want to test compatibility; keep in mind that you can symlink the entire plugins directory if you're testing multiple!
Basically, if you're a plugin dev, you no longer have to update your files across multiple local installs; you can simply keep your plugin files in one place, and symlink that plugin to any local install you're testing on.
Another alternative to this is to develop in a local multisite install. Not suitable for every scenario, but good enough for 90% of sites in my experience.