Practically speaking, it's extra protection and a security blanket. Lots of part time 4x4s didn't bother with them because they ran regular U-joints in the front axles. Highly durable without external protection. MB used CV joints in the front axle, even in their part time 4wd trucks (460). When there's a CV up there it is a significant extra measure of security to have that CV inside a closed knuckle, where the closed knuckle doesn't really add all that much practical margin to a U-jointed axle.
If an errant stick or something punctures the boot of an exposed CV joint, that joint won't be long for this world. With the closed knuckle, the boot is not even exposed to the elements and such, but even if it did tear for some reson, that boot is just running in another grease bath, so the joint will keep on going much longer than if the boot were exposed to outside elements.
When Land Rover had CVs inside closed knuckles they originally didn't even put a boot on the CV, OR run any special grease in the CV, it was just bathed in the 90wt flowing around in the axle and swivel balls. This was no problem and the joints lead a great life being constantly bathed in a great oil supply. They later went to grease in the swivels due mainly to design corners that were cut when ABS sensors were added to the front axles and the upper swivel pin bearings were compromised to a less effective design. The weaker swivel bearings resulted in a requirement for frequent (like every 20,000 miles) adjustment of the swivel bearings to keep the ball seals working properly. Since nobody kept up with the swivel maintenance, they all started complaining of leaky swivels and LR's answer was to start putting grease in them rather than the oil.
-Dave
