Back in the old days, it was used to protect ivory ferrules. Chandivert, Tweeten, and others have also sold tips with pads pre-glued to the tip. Some swear up and down it softens the hit, and youll hear some say it makes the hit feel firm.
With LD shafts, several of the makers use some variant of a tip pad to seal the open end of a hollow shaft to have something to actually glue a tip on to.
All in all, IMO they arent needed (unless its the hollow shaft situation), and dont really do much. One nice aspect of them, is once they are on the shaft, retipping a cue becomes a little easier. You dont have to get as close to the ferrule etc.