Why is this useful? Well for one, if you deal with a lot of delimited text, using free text select it is possible to select a 'column' of data and copy/remove it, etc. Normally you would have to use something like Excel to do this, and even then it's only possible if the data is very well formed.
For cleaning up documents, free text select can save hours of time. I believe this functionality has been in Word since at least version 5.1, but I haven't seen it documented here...

