I think there's an anchoring mechanism. You come in at a level and maybe promote after a couple years but then every promotion becomes harder, they are used to you and there's the other engineers with their salaries and there's a lot of mental inertia to see that John should be now a staff engineer when he's already promoted (is he really so outstanding compared to the other engineers?).
But you interview with another company and you reinvent yourself. They have a problem to solve and you have experience in it. You interview well, now you are a principal engineer with a big raise.
Yup, you nailed it. Most companies are content to let this kind of anchoring and psychological inertia let them lose out on capitalizing on their investments, but let's remember that this isn't necessarily unintentional. Companies continue their ability to function sustainably by adequately utilizing and providing career trajectories for the majority of employees that work there, for many of whom the stress and risk management of trying to figure out how to get promoted "up or out" is not worthwhile. For some companies, it's important enough to retain high performing outliers that they put in place recapture, recalibration, or boomerang mechanisms (as another commenter wrote somewhere in this thread). But for others, it may just not be necessary.
But you interview with another company and you reinvent yourself. They have a problem to solve and you have experience in it. You interview well, now you are a principal engineer with a big raise.