Well, you'd have to say it's all about entertaining/distracting the masses. If we didn't have Eurovision people might start to use their brains, and surely we can't have that!
It's also a status thing isn't it? You have to be in with the in-crowd, part of the gang. And for each country it's a chance to show off their talent, so basically a huge reality show with kind of no real solid prize at the end, other than national pride I guess and a finger up to all the other countries.