Micro stakes tournaments are certainly profitable. It takes a very different play style. xflixx (Felix Schneiders) has some great ebooks on this play style.
But to answer your question, there are two main reasons. Firstly, the quantity of players who play these stakes make it worthwhile to host these tournaments. Both recreational players and just straight grinders enjoy them.
Secondly, To get people's foot in the door. People will easily tell themselves "I will just play the cheap tourneys" until either:
- The gambler's mindset kicks in
- They get bored of the cheap tournaments or
- are just otherwise tempted to move up.
Micro tournaments are a non-threatening way to attract more players into buy-ins.