While not a necessary addition, it does help make your target stand out from a crowd or from a busy background. Outline Mode also provides at-a-glance information about whether your target is friend or foe, eliminating the need to first look at a nameplate. Seeing it action makes me wonder if it would be viable to play entirely without a UI when there isn't text in need of being read. It also works from a distance, highlighting targets that might be very far away, and thus very small on your screen. I could see that being a boon to players with poor vision. That was not a pun.
If you aren't a fan of Outline Mode, it can be disabled in your system settings or changed to a mode wherein only quest NPCs are highlighted.