Well, I don't think it's a particularly compelling feature - but I can easily see the appeal in terms of adding to the immersion.
It's not the fact that you can be a psychotic murderer - but that the world will realistically respond to what you're doing.
Like, say, if you launch a huge fireball inside a small building - there will be consequences.
Personally, I don't think I've ever murdered a child in a game - and on the occasions when I experiment with murdering innocent NPCs, I tend to reload the game after I see what happens.
So, it's more about the backdrop and giving players the sensation that "anything" could happen. To me, any immersive game that's claiming to simulate a real world would need to look into this kind of feature and support it in one way or the other, if it wants to be wholesome or complete.
However, on the very, very long list of necessary features for complete immersion in a simulated reality - I don't think it's near the top.
It's definitely true that creating a compelling character-driven narrative, it's an extremely complicated feature to implement - and it's hard to see how it could be done without some major sacrifices to the emotional impact of the story.
But, speaking as a major fan of Bethsoft games - I think there are other ways to tell a story.
In fact, I think that's one of the key misconceptions from people who think dialogue C&C represents more choice than, say, Skyrim or Fallout 3.
In those "simulated reality" games - the story is much more personal, and it's much more centered around the freeform character creation (as in, you can literally be anyone you want to be) and how the world/simulation reacts to your choices - and much less about picking dialogue options restricted by the story designers.
I don't mean to say one is better than the other, and I do tend to prefer the more traditional narratives of games like Witcher 3, Last of Us or Bioshock Infinite - but I have to say those games never felt like it was truly MY story. In fact, they all feel like I'm just a participant with a limited measure of impact on the outcome.
No, you can't kill certain NPCs in Bethsoft games either - but they allow you to "knock them out" and they tend to have many more killable NPCs.
The children thing is obviously a censorship limitation more than anything.