According to this link I found on Google, the purpose of a DVD jacket picture is twofold:
1) When the disc goes to the "stop state," a full-screen image appears on the monitor. This image is usually a logo or text which is unique to that particular title/movie.
2) On certain DVD disc changer machines, the user can search through the titles loaded into the machine. In this case, a listing of all the titles loaded into the machine will appear on the monitor, with each title being denoted by a smaller image. Again, this image consists of a logo or text, which is unique to that particular title/movie.
A few months ago, I stumbled across the jacket option in Apple DVD Studio Pro and started adding jacket images to my own DVDs. If you'd like to do the same, check out this how-to from ProMax.