It's a convenient library of games on an application built specifically for that purpose. It keeps games updated and doesn't get angry about mods, it's also relatively easy to tell which games you have played and which you haven't. It also has superior sales to other places (such as Origin). People like having everything easy to find and in one place. Amazon's service is superior (in terms of DRM, sales, etc), but it's almost impossible to tell what games you have played/completed and the UI is not nearly as pretty. It looks like they took the order list and tried to update it for digital downloads.

Basically, Steam knows what product they are selling, they sell it cheaply, they sell more of it in one place than other (like GoG and GMG), they let you mount games that aren't Steam games into it to help keep it organized. Other services simply haven't caught up and gamers seem willing to accept limitation in exchange for convenience. It's an easy target for disruption, but no one has managed to yet, Amazon is working hard but their UI is not up to snuff.

Also, achievements, friends, and groups are a nice touch that doesn't exist elsewhere in the same quality or quantity.