I could not agree more with your confusion on this one. "Hell levels" have always struck me as one of those relics of bad design that people retroactively mythologize, when in reality they don't add anything of value to the experience. They're just artificial roadblocks that pad out time spent doing the exact same things you were already doing the level before, just with worse returns.
And that's one of the key problems: there's no new gameplay there. No fresh challenge. No unique content. It's simply an arbitrary penalty and basically an extra "tax" on your time. People will call it "hardcore" or say it creates nostalgia, but let's be honest: it isn't meaningful difficulty, it's just more disguised tedium.
The irony is that these kinds of mechanics don't actually encourage grouping or community either, which is the justification people usually trot out. If the grind suddenly gets three times slower at a hell level, players don't think, "Oh, I should go form some bonds to get through this." They think, "Why am I wasting my time on this treadmill?" And that frustration either drives them to burnout, or pushes them into meta-chasing for the absolute fastest and least interesting way to brute-force through it.
If progression needs to be slowed, there are healthier ways to do it. Ways that actually add to the experience instead of just stretching the same content thinner. Longer leveling curves across the board, richer group incentives, content that requires strategy and coordination. Those all extend progression without making players feel like they've hit an invisible wall.
Hell levels, on the other hand, are the design equivalent of hitting the brakes on the highway just to make the trip take longer. They don't deepen the experience, they just prolong it. And to me, that's the worst kind of MMO design.
