To produce a high quality essay you need to demonstrate your ability:
to understand the precise task set by the title;
to identify, appropriate material to read;
to understand and evaluate that material;
to select the most relevant material to refer to in your essay;
to construct an effective argument; and
to arrive at a well-supported conclusion.
The need to use such a wide range of academic skills is probably the main reason why the essay format is so popular with tutors as an assignment.
The word limit adds to the challenge by requiring that all of these skills be demonstrated within a relatively small number of words. Producing incisive and clear written work within a word limit is an important skill in itself, which will be useful in many aspects of life beyond university.