It's all about optimizing recommendations.
If you just have a star or not starred. There's a chance the service will recommend a song you will likely hate (now you could be clever here and factor in skips).
So now we have Hate, Love, Unrated. This works except for your OCD users will want to rate everything. And the more ratings you have, the better your recommendations will be.
I only use one, three, and five stars, and it determines the "mood" of the song. One star songs are slow and chill, Three star songs are upbeat, and five star songs you'll want to rock out to.