This (and the contenteditable attribute) were added in Internet Explorer 5.5 to let you create WYSIWYG editors and it was later reverse engineered and replicated in other browsers.
It is still the basis for a lot of WYSIWYG editors, but it's not perfect and sometimes provides too little control (produces messy HTML), so sometimes people avoid it and build a WYSIWYG editor from scratch using something like <canvas> (e.g. Google Docs) but this is way more effort.
Some of the O.G. WYSIWYG editors (e.g. CKEditor) still use "contenteditable" but patch over all the problems with it.
