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That rule contributes to a couple of things:

• Indeed to disincentive ganging up so much. That way you start thinking of more varied ways to spend your turn instead of just "Everyone pick one guy and roll attack".
• It helps avoid number bloat, in which suddenly everyone has hundreds of HP and doesn't feel like it matters anymore. 
• It balances out how much numbers are advantageous, otherwise you can't just roll in with dozens of hirelings with crossbows and immediately win any fight in the first round. With that rule, greater numbers are still advantageous and overwhelming, but not in an extreme way. 

Furthermore, a couple of months ago, I answered a question on Discord about how the rule interacts with the fiction. I'm gonna paste my response here, as you might also find it clarifying:

Let me add to this because I've thought about the gang-up rule a lot. The balance aspect has been described well enough already but @DedZeppelin touched on an interesting point: being fiction first. And the rule does marry mechanical balance and fictional positioning really well. Ganging up is impactful. If you're cornered by 6 people, you are in trouble. Let me give a clear example: Let's say you're surrounded by 6 aggressors, each carrying a simple Dagger (d6), all 6 proceed to lunge at you. Now considering the math: Were you attacked by a single dagger, the distribution is naturally flat. All results have the same 16% chance of happening. The all-desired 6-damage roll is as likely to happen as any other result. Since you have 6 daggers coming at you, the chance of suffering the maximum damage jumps to a whopping 66%. Furthermore, you have a 91% chance of getting at least 5 damage. A single attacker would have a 33% chance of 5+. Now that's the mechanics, I mentioned fiction first, right? The issue at hand here is not that the gang-up rule doesn't make sense in the fiction. But that a lot of people might look at it from a misled angle that's probably created by other games with additive damage. Where you're judging as if every blow dealt by a single attacker is the best one they could possibly execute. A single attacker rolling the maximum value is a perfect strike, they managed to land a solid hit without the target managing to properly dodge or parry it, with now only the armor they might be wearing being able to offer some protection. As the dice distribution supports, such a blow is just as likely as a glancing, imperfect blow that just dealt 1 damage. You are not to expect every swing to be ideal. You have to expect that some will be, and some will suck.

Meanwhile, when you have many people swinging, you're basically guaranteed to cause damage close to the max possible. Because, as mentioned, fictionally you are in trouble. Just as a lot of damage from a single attacker is a deviation from the expected, low damage from multiple is also a deviation. You have the number advantage, so when the lot of you rolls the rare bunch of 1s and 2s, fictionally it means that y'all got in the way of each other's attacks, instead of causing the expected, almost guaranteed serious harm a group should be inflicting on a sole individual.