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It helps ensure that levels between 2.5v and 5.5v can be fed to the controller without breaking anything. For some cheaper power supplies you might get a voltage drop when starting to pull load, this will clean that up and prevent the voltage from dropping too low for the microcontroller.
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If I’m reading the correct datasheet I can see it is current limiting so it should shutdown when overdrawn.
Did you read the explainxkcd link?