I'm kind of the opposite of CRPGnut - I sometimes struggle to understand when people don't play on the hardest difficulty. Here are some reasons why I do:
Some thoughts:
1. In my opinion, most game stories are just not that good. There are a few exceptions, but most game stories pale in comparison to more traditional storytelling genres, i.e. books, movies, etc. I suppose you could say that a game with not much challenging gameplay is kind of like a "choose your own adventure book," but I always thought those were pretty lame.
2. If we accept that the stories really are not that good in games, why are we playing them? At least for me, it's for fun gameplay and the challenge of "solving" the game. Can you beat the hardest level on offer - if yes, that is a fun accomplishment.
(And, at least for me, the suggestion that some in this post made that we play on the hardest difficulty to compensate for not having power in real life?!? For me personally, my professional accomplishments are way more impressive than my gaming ones, and yet I probably take more pride in my gaming accomplishments.) If instead the gameplay is easy, I think a game gets boring more quickly, and most stories can't prop up the game on their own.
3. Moreover, you can only be surprised by any one thing once in your life. If you know there is an ambush around the next corner because you already played it on easy or normal difficulty, you will never know if you could've survived it on hard by racking your brain or trusting your reflexes that first time. Perhaps this difficulty issue is why I don't understand how people can replay games - I feel you can only get that awesome "new" or "surprise" experience once, and you do your best to survive without having to reload a save. And when you succeed, it's a great feeling.
4. Finally, many games have systems that you can exploit once you study them and figure them out. I want every incentive to try and find those loopholes and not feel guilty when I do find them - so I need to play on hardest. I never look at guides or cheats, and I avoid spoilers. As a quick example of super analysis that I think is fun, I still have a giant Excel spreadsheet that I made for King's bounty crossworlds that helps me to determine what my optimal army composition would be given my leadership score, the various abilities and stats of the different creatures, the equipment I was wearing, etc. Amusingly, when I played the Orcs on the March campaign, I discovered that the designers had changed the stats on all the creatures such that I had to rework everything, and that was fun too.
5. To sum up, for me the challenge is fun. For me, seeing if I can survive a surprise the first time is fun.
The great thing about there being so many games these days is that we can all find at least some games that cater to our specific interests, even within RPG's.