In the couple of books that I've read about blockchain technology, reputation is an important metric. It's to do with trustworthiness and, from what I understand, is a more reliable version of things like Trip Advisor reviews and things of that nature. So, for example, if you're travelling and need to book an Air BnB, you may be offered certain properties based on your reputation, so it's a kind of filter. It could work for financial transactions, contracts, etc. I'm not sure how open to manipulation it could be, but it seems to be a fairer way than say getting trolls voting down a bistro on trip advisor just for lols.

As to how it applies on the Steem blockchain? I really don't know. It may be that it's simply an inherent part of blockchain technology.