In order to understand not only why SEO is important, but also why it is so competitive, you must understand what the term "organic" means.
Organic listings (or rankings) are produced by the Search Engine at no cost to the business they are listing. They are free. Traffic produced from these listings often times convert into sales at a much higher rate than paid traffic will.
To put this simply:
Organic Traffic = More Conversions + Higher Margin Per Customer
Paid Traffic = Fewer Conversions & Lower Margin Per Customer