Except they've never done that, so technically it's only legal because the system has worked so far. Never in the history have Steam have they ever just "cut someone off" without a reason. Usually if they do you're breaking the rules big time, and have been watched for some time or received a ton of warnings. Worse case scenario Steam someday runs out of money and they servers shut down locking everyone out of their games. I think at some point they were working on a way to get the games to people in the event that this happened, but no idea where those plans went.
While you do have to download the games there is an offline mode once you've already installed and verified the game via a connection.
You might have to download the client/make account/download game but at the same time you forever have it on your account and assuming you have an internet connection can download and play it anywhere provided you also have the computer to run said game.
Then there's the Steam deals of the day/week/or some other thing. With crazy savings that frequently pass 50-75% off games.
Edit
By rules I mean big things like modifying game files, or hacking into valve and leaking their info to steam users. Or credit card theft. You know BIG things. Though in game you can be banned from individual servers, though if it has VAC and you get enough bans it bans you from all VAC enabled servers. But that's just for the individual game.