I use collections as a final step before exporting/outputting images for a specific purpose. Here's an example from my role as the yearbook adviser at my high school.
We have a lot of pictures (~10k/year) organized into dated folders corresponding to events, activities, games, etc. Now let's say I need to work with the images we took of "Law Day" - a mock trial event in our mock courtroom. All of these images are stored in a folder labeled with the date and activity name, and we have ~100 pictures.
First, we need to make a layout for the yearbook. This layout is a 2 page spread, and I know I need 12 images to fill the layout. So I go through my original folder, pick out maybe 15-20 decent images, and dump them into the collection. Then I go to the collection and weed out the ones I don't want until I get down to my exact needs. All of the images are still in the original folder, but only the 12 image I want to use for the yearbook spread are in this collection. If I'm editing the book and decide I want to edit an image, it's as easy as going back to the collection, finding that individual image, making the edits, and re-exporting the JPEG.
Two months later, my boss (Social Studies supervisor) wants me to make an end of the year slideshow of activities from the social studies department. Now, maybe I only want 10 images from law day to include in this slideshow. I make a new collection, and add 10 images to it. I might also refer to my original collection to pull out the "choice" shots, or I might go back to the original folder.
Finally, my boss (same supervisor) wants a CD with some images from all these activities so that he can prepare an end of the year report. Thankfully, I still have all the collections I set up for the slideshow, so I choose those images, re-export the jpegs to a print-quality resolution, and burn him a CD.
It's also really helpful for pulling images from multiple folders. Say, for example, we have a spread featuring candid shots in the cafeteria, and these are pulled at random from 10-15 different folders. It would be a nightmare to go back and find those images again if they weren't pulled together in a collection.
For me, they're an incredibly useful organizational tool. The key benefits are that images can be in more than one collection at a time, the images can easily be moved in/out of a collection, and the collections are temporary. If I know I'm never going to need to use a collection again, I simply delete it, and I know the original files are still in their original locations.