Warcraft is exceptionally inflationary - money is pumped into the economy by quests, by cash drops, by "vendor item" drops. It leaves the economy by vendor purchases.

... and auction house 'cut', and equipment repair. And that's about it.

Vendor purchases aren't a large money sink, for most players, at most times. There are a few notable ones, but they're notable precisely because they are rare and/or one-time purchases.

It's an effective anti-inflation (gold sink) device. We actually need more of those imo.

Two reasons:
1-You use the AH instead of hocking on trade constantly, this saves you time and therefore gold, therefore to "host" your auction the AH takes a small portion of the total gold received.

2-This also helps slightly when you consider the cost of an item - when putting something on the AH a selling needs to consider the fact that, 10% will be lost, this makes the prices a bit more sane imo - some people try to overcompensate but if there's competition the value of this is lost.

Some have said this prevents gold farming as well, but to be honest it doesn't do a damn thing for gold farming, it still happens, and even through the AH. (when I see some dude hosting like, 20 grey items for 2k each... riiiiight.)