It is so you don't block the faces of the people behind you. Of course, the best way to do this is just sort people based on height, but often group photos are rushed, and you get what you get. People are polite enough to know when they are blocking someone behind them, and they bend down in many different ways. If everyone has grabbed their knees, that's been instructed, and it's common with sports teams, as it's a somewhat "active" pose, while also providing that "everyone can be seen" attribute that you really want.
It's a matter of being polite. I've taken a few group photos... sometimes it isn't necessary and people won't do it.
In this group, this happened naturally I didn't instruct them to stand this way or in these positions, I just said "gather around the airplane" and let them do whatever they wanted.
In this one, there was also no instruction given. We instinctively know it's a large picture though, and nobody's gonna break their knees in this one, it isn't necessary.
So, in conclusion I will say this bending down thing is a natural reaction that polite people will have when they are in front of someone, and if you don't like it, you're gonna have to give instructions.