You're so vain...

I used to play City of Heroes.  The character creation setup gave players a HUGE amount of control over exactly how their avatars looked.  It was practically its own game...and then you could use the characters in the real content!

I liked that.  Being able to customize how you appear in-game is a wonderful option, even if it's just fluff.  It's easy to write it off as "my current gear looks stupid as hell, and I don't want to look at it anymore," but for a lot of us, it's something more...When I was in a Video Game Design class, one of the first things we discussed was what motivates players to pick up a controller or log in or what have you.  What makes us game?  There's a whole discussion on that down the road, but let's focus on Escapism.

Video games provide us with a convenient means of getting away from our lives, for a little bit.  It's a small thing, but being able to take your mind off of whatever you're dealing with for even a short while can work wonders.  Books offer much of the same benefits, but games have another layer: you're in control.  You make the choices.

I like that.  When a game lets you start with a faceless, nameless blob of a character and mold out exactly the representation you desire for your adventure(s), it's awesome.  Being able to make reasonable changes to that appearance at will is a great bonus.

For example, I just changed my Jedi Shadow (Star Wars: The Old Republic) into a gear set for dps, and made that gear set have the appearance of a civilian pilot...just so I could have pants and wear something that wasn't a Jedi robe for a while.  No penalty, aside from a small in-game fee paid with fictitious currency so that I could have the appropriate game stats and actually use the outfit in combat.
Or, take my Death Knights in World of Warcraft.  They use much of the same stats and gear as Warriors and Paladins...and the art styles for the equipment they all share change wildly between sources/expansions/zones.  But, I want my DK to look like a DK.  They have a set art style, and I like the look (for some reason).  I can slap the appearance from the stuff I like onto the things I use, and all it costs me is a small in-game fee.

It's all vanity, and I like that we get the choice to be so vain (in-game, anyway).  When your character is an avatar of your personality, priorities, and feelings...it's nice to be able to put on the face you'd like to wear.