The description in the ticket isn't too bad:

allows users to make a window disappear and keep only its title bar visible.

It really just hides the window contents. In effect, it is similar to minimizing a window, except that it doesn't spring into your panel and rather stays in place as just the window title bar without the contents.

It is a niche feature, if you couldn't tell. But it isn't some KDE specialty feature; various other desktops and window managers also support it. I think, it was more popular in the early days of graphical user interfaces, when we were still working out, how we want to do panels and such.

And conversely, I do think it makes more sense as a feature on big screens like you can have today, where your panel might be quite a bit away.
Don't think, window shading will make a big comeback just yet, but yeah, probably enough existing users that use it, so that it would be cool to support that workflow.

Thanks for the link! Heartening to know there are others that love this feature like i do