There's a number of reasons, but I'll also state up front that I believe that 99Designs in general is terrible for the design industry. It teaches designers and clients that design isn't worth much, not to mention having people work for only the chance of getting paid (which doesn't fly in most other industries). It devalues the industry as a whole, and as that's how I pay my bills I find that less than ideal.
You're probably a more educated buyer than most, though it also sounds like you've worked with some awful freelancers. I also don't know that anecdotal evidence about designers and Photoshop from the 90's is a fair point for this argument (especially considering how little any of us knew about the web and design then)
When working with clients I find that in general they don't know what they want, or more accurately don't know what they need. The designer's job isn't just to draw a logo, it's to solve your design problem effectively. Sometimes that is a logo, sometimes it might be a mark and a wordmark that can be used in tandem or separately. It might be something that needs to be used in one color, reversed out, adapted for packaging, printed on a t-shirt, etc.
A good designer won't just deliver the thing you asked for, which is all you get with 99Designs (if you're lucky). They'll help you determine your creative needs, evaluate your overall branding and how an identity can be applied across different media, consider marketing impact and printing costs, and suggest alternatives and new ideas. There's a relationship that can be developed that positively impacts the client's bottom line, if they're open to it.
