Every UTXO is a piece of data that all the nodes have to carry around. UTXOs are actually a kind of efficient way to manage all of the data by not having them broken up. 100 $1 vs 1 $100. By the network incentivizing the consolidation of UTXOs it keeps the UTXO set (all existing UTXOs) smaller than it otherwise would be. This makes running a node easier. This makes the network more secure and decentralized. Yeah there is more to it than this, but you only need to consolidate on chain.