For developers, offering in-app billing allows you to make such purchasing a more streamlined event for buyers. The easier the transaction, the better the chance that a buyer will make a purchase. More purchases means more money in the pocket of the developer. Say you want that amazing 17th Century sword for your character so you can slice the head off the green meanie. Instead of exiting the game, heading over to the Android Market and paying for the sword, with in-app billing you can stay in the game and make the purchase.
For more information on making an in-app purchase, click on the source link.
source: AndroidDevelopers via Engadget