Why is xargs necessary?

You are confusing two very different kinds of input: STDIN and arguments. Arguments are a list of strings provided to the command as it starts, usually by specifying them after the command name (e.g. echo these are some arguments or rm file1 file2). STDIN, on the other hand, is a stream of bytes (sometimes text, sometimes not) that the command can (optionally) read after it starts. Here are some examples (note that cat can take either arguments or STDIN, but it does different things with them):

echo file1 file2 | cat    # Prints "file1 file2", since that's the stream of
                          # bytes that echo passed to cat's STDIN
cat file1 file2    # Prints the CONTENTS of file1 and file2
echo file1 file2 | rm    # Prints an error message, since rm expects arguments
                         # and doesn't read from STDIN

xargs can be thought of as converting STDIN-style input to arguments:

echo file1 file2 | cat    # Prints "file1 file2"
echo file1 file2 | xargs cat    # Prints the CONTENTS of file1 and file2

echo actually does more-or-less the opposite: it converts its arguments to STDOUT (which can be piped to some other command's STDIN):

echo file1 file2 | echo    # Prints a blank line, since echo doesn't read from STDIN
echo file1 file2 | xargs echo    # Prints "file1 file2" -- the first echo turns
                                 # them from arguments into STDOUT, xargs turns
                                 # them back into arguments, and the second echo
                                 # turns them back into STDOUT
echo file1 file2 | xargs echo | xargs echo | xargs echo | xargs echo    # Similar,
                                 # except that it converts back and forth between
                                 # args and STDOUT several times before finally
                                 # printing "file1 file2" to STDOUT.

cat takes input from STDIN and rm does not. For such commands you need xargs to iterate through STDIN line by line and execute the commands with command line parameters.