Casting level is a way to 1) combat trash mages that, before, required no eq to have full spell power (thus making pk pretty much riskless to a naked mage) and 2) to require mages to eq back up after a death (and loss of eq) if they want to have full spell power again, just like most other classes do (such as a warrior needing at least a weapon and shield to even be semi-useful).
You can only have a casting level equal, at its highest, to your current level. That is how powerful your char can be, else you would see lvl 20 mages with spell power equal to a lvl 30. Without CL eq (and high int, since int effects CL as well), a lvl 30 mage will typically have the spell power of a lvl 19ish mage, and that means all of their spells are cast at lvl 19, instead of lvl 30.
If you think of it more in terms of a barbarian seeking out the most powerful weapon he can find, and then equating that to a mage seeking out the most CL he can find, then you might be able to get the picture better. Instead of seeking out the most powerful weapon, a mage seeks out eq (that's very plentiful and not hard to get) that allows him to hit as hard as he can, just like any tank might.
One big reason CL is a pretty nice idea, IMO, is just because of how potentially powerful mages can be. A legendary red robe can pretty easily do 400+ damage in one round, so you can imagine why there might be some need to require such a character to at least need some basic eq to reach that potential.