Designating a choice of law provides a measure of predictability when you know that you only have to consider the legal doctrines of one jurisdiction, instead of some greater number whose law might be applied without an agreement. For companies that have many thousands of similar contractual relations that can mean a considerable cost savings as well. The traditional rule regarding contracts is that, regardless of where a lawsuit over that contract is begun, the law that will be applied in the suit is either the place where the contract is made or the place where the parties intended it to be performed. The latter is often more persuasive if the contract was signed in a geographically convenient neutral ground or a place that has little to do with the contractual relationship. The choice of which law applies in interpreting and enforcing a contract is called the choice of substantive law.
Substantive law is contrasted with procedural law.
The applicable procedural law is always the law of the forum. As a consumer, you obviously would prefer to make your legal claim in a pro-consumer state. Typically, the clause will simply say, All disputes arising out of this contract shall be determined in accordance with the law of the State of New York. The choice in the example was no accident, by the way. Most lawyers agree that New York's law is very favorable to business, especially in areas such as insurance and employment.