you don't suddenly feel more invested in the gameworld because you have to eat a loaf of bread every eight hours or suffer a penalty.
Now, there are needs mods which lovingly model biologically-accurate penalties, require that you stay hydrated and take in balanced nutrition, etc. Going to that level of detail serves no real gameplay function, although quite a few people are into simulation for its own sake. But just because they use the same terminology ("eat," "sleep") doesn't mean that all mods implementing these mechanics do so for the same reasons.
A sense of immediacy and urgency, a sense that
time matters, is painfully lacking from Oblivion despite the fact that time is clearly passing, with a visible day/night schedule and shops that aren't open 24/7. Hunger makes downtime a valuable commodity. Sleep does the same for uptime. And without
both, you can just sit in one place for three days waiting for a cave/merchant/bunch-of-herbs to respawn, without expending any resources whatsoever. Needs mechanics sharply discourage a simple, obvious, nigh-irresistible exploit which
breaks immersion, and removes the likewise immersion-breaking disconnect between time
visibly passing but not
tangibly passing. It can be said that their presence doesn't add anything... but their absence hurts. There are other ways to address these issues, but hunger and fatigue are familiar and easily accepted, which makes them good candidates to fill the gap.
And if your other mods have created a more dangerous and less money-filled world, the characterization of "I have to click the bread icon every eight hours" is completely false, especially at low levels. It's more like, "Holy crap where am I going to get some bread, and can I find a safe place to sleep or am I going to be eaten by a wolf?" ...crossing the line from chore to obstacle, which changes it from tedious to rewarding.