It basically provides a central administration point for your network, imagine you have say 5 pc's and no server. Joe bloggs logs onto 1 pc, he gets full functionality (forget about XP's limited user and admin user) he creates a few documents, then changes his password. The next day he is working in another part of the office, he logs on to a pc - his password is different, and where are his documents? on the other pc !
What if you got a new member of staff, you would have to create user accounts on all your pc's for this user, and as previously mentioned, they have pretty much an open workstation,i.e. no restrictions, again, the server can be configured to basically say what user (or group) does what, right down to taking certain items off the start menu such as the RUN command, and of course the users documents are there wherever they logon.
Then theres printer sharing/management. I could go on but I dont want to bore you, but please post back should you have any more queries.