Why Do the Power Ratings?
The simple reason is that they work. I looked at the ratings as of Week Three. If you had just ranked teams based on Won/Lost Percentage at that time, the correlation between that ranking and the teams' Won/Lost Percentages since then was 32.5%. If you ranked the teams based on power ratings, the correlation between that ranking and the teams' Won/Lost Percentage is much higher--50.2%
I then did the same calculation for my rankings as of Weeks 4-7, summarized as follows:
Week 4: Win% Correl: 32.6%
Week 4: PWRR Correl: 42.2%
Week 5: Win% Correl: 31.5%
Week 5: PWRR Correl: 33.5%
Week 6: Win% Correl: 22.6%
Week 6: PWRR Correl: 31.9%
Week 7: Win% Correl: 28.9%
Week 7: PWRR Correl: 30.8%
As you can see, in each case, the Power Ranking correlation is higher than the ranking based on prior winning percentage.