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I can think of a number of things why it's used:

1) It tests if you're able to think on your feet. Anyone can Google for help/solution/code for a problem, but most people want to know if you can think for yourself and that your first reaction to a problem isn't to go for the browser. They want to know what you're thinking and how you can solve a problem.

2) It tests how you handle stress. Do you blank out and panic? Do you start shaking uncontrollably and can't speak properly? Crunch time gets stressful, and if you're easily stressed out your desired employer may see this and think you're not a good fit.

3) It tests teamwork. A lot of times, interviewers will drop hints or advice on how to solve a problem. I've heard that some programmers will just disregard it or try to fight it and solve it their own way. It's a good time for an interviewer to see if you're someone they'd want to work with.

EDIT: If you're going to downvote me, you should leave a reply why you found my comment to be deconstructive or irrelevant.



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