Companies do contract to hire as a benefit to both themselves and the candidate they are hiring. Just like job seekers, companies spend a lot of resources when hiring a new employee. In most cases, the hiring process moves fairly quickly. Companies have needs, and prospective employees want to move to a new job or secure a job. The vetting process, while trying to be thorough, usually moves too fast for both the company and the candidate to get a true sense of what both have to offer. The company is trying to get the best candidate possible and will present the opportunity in the best light. The candidate is trying to get the best opportunity possible, and present themselves in the most positive way they can.
During the interview process, it is hard for both parties to get a true sense of one another. Contract to hire gives both the company and the candidate a window, after starting the job, to get comfortable with all that each party has to offer. For the company, it is an opportunity to see the candidate in action and understand how they work and fit into the organization. For the candidate, it is a period that they can start the job and make sure they are comfortable with all that the organization stands for and is trying to accomplish.
The real benefit for each party is this: For the company, if the candidate is not the right fit, they can make that decision within the contract timeframe and move on. For the candidate, if the job isn’t what they expected or wanted, they can make the decision to leave within the contract period without negatively affecting their resume with a short time period at a "permanent" position. It really is a benefit to both parties, because everyone is looking for the best they can get: the best candidate and the best opportunity. The best benefit for the candidate? If they do a great job in the contract period, they have some ammunition to get a better permanent offer.
Making the jump into contract work can be intimidating, but look carefully at contract-to-hire opportunities. It really could be in your best interest.