In general, there are two purposes to format USB. The first is to permanently delete credential files. The second is to fit a new system.
Formatting will change the way that data is stored and organized on your device so that you're able to use it more efficiently. A file system is a set of rules that defines how data on a hard drive is organized and accessed. It also determines which type of files, such as programs or images, can be stored in certain folders. Without this kind of structure to organize all these individual bits of information, it would be difficult to find anything on your Mac.
So, whether you're looking to format your USB drive because it contains confidential information, or you've just downloaded a new operating system and want to install it on your device, formatting is necessary for the computer to be able to recognize and read data from the external device.