If you're wearing a headset, it's hard to hear yourself speak, so you'll tend to talk louder. Just like a telephone, it mixes a portion of the microphone signal into the headphone signal, so you can hear some of your voice along with the online chatting and game audio. This lets you easily sense what you're saying, but not so much that it's distracting.
Mic monitoring not only helps you stop talking so loud, it also eliminates that annoying "clogged ears" feeling when talking while headphones are covering your ears.