Setting the teeth has a few benefits:
It creates a kerf wider than the body of the blade, which does indeed reduce the chance of a catch / buckle- this is nominally more important in western-style push saws than in japanese-style pull saws. You can stil have a bound blade if there are stresses in the wood that tend to cause the kerf to close.
A wider kerf also is less likely to clog with debris.
Secondly, teeth set at an angle are slightly more efficient at cutting- slicing rather than scraping.
As to why you'd want to remove it? A thinner kerf would be my first guess (though that's all it really is.)