We need to talk about something

So, it wasn't actually much use on the PS2 itself! But on Dualshock2 controllers for PS1, it would disable the analogue sticks and switch to the up/down/left/right pad input only.

So, what it did was disable a part of the controller and nothing else? …why???

I assume, it's because on early dualshocks analogue sticks where new, so not all games where compatible, which would leave to poor input, or pack of input at all. That would be my guess.
I mean, think about early Tekken on PS1. Back then analogue sticks where worthless, so you'd just disable it and use the buttons.