Well first, a hacker would never try to "crack a encryption algorithm" if they do not have access to NSA type of software. The software needed to crack today's encryption algorithms requires super computers x1,000,000 (the computer need to test EVERY variation of what the key could be in the world almost..)
Of course they can try and hack your password, but if you encrypt something i would assume you use a extremely strong password.

And yes encryption is something that you use with a password or a key to be able to recover, i don't know how else you would be able to recover something hidden then using a password or some sort of key you own? I mean you need some means of retrieving it.

Just like encryption can be seen as a lock, with the password being a key, you would not argue that "Why should i lock my door, a thief can just have a copy of my homekey or break my home door?". When you encrypt you effectively lock in all your files, making them completely secure without the password (as when you lock yourself in at night). An not-encrypted disc will be emptied directly if a security breach is conducted (a thief will empty your house directly if the doors unlocked) by a attacker while a password protection encryption will most likely make them turn away (if you don't have some insanely important info they want).

The point to encrypt you files are:
1: If someone hacks you device or get remote control, all files are secure and unreadable.
2: If the computers that got the WannaCry hacking virus recently, had a simple encryption of the files that would have stopped *the virus from encrypting the files *of the victim itself.
3: A hacker who is trying to find a victim, will immediately switch victims if they find a computer with encrypted files rather then one that does not.

I hope that answered your question to whether why one would use encryption to secure virtual files. You have a good point that the password is the point of weakness in this, but as i said, would you leave your home /safe open with the same logic?

Thanks for reading :)