I will keep this very brief

1] prototype development can be very expensive [I speak from first hand personal experience]

2] prototype development can also help to demonstrate your time frame in establishing your IP

3] it helps companies understand, as you say, touch/smell/taste the idea. Its a chicken or egg thing.

Patent prosecution and protection is already one of the most expensive areas of law. Add to this prototype development, and you have some serious potential cash outlay on your hands.