Raindog: the idea is that you and I trust the admin and the board software is operating properly. In this situation, we can exchange PM's using normal board features and without having to mess with external applications like GPG, and nobody but us can read the messages. In particular, if someone else gets control of the server at a later date, they can't read the stored messages. It's true that the admin could potentially modify the software to get access to our messages the next time we log in. There could even be an admin-level feature to do this in the event of a LE investigation or the like, but it would capture only from specific accounts named in the investigation, rather than from all the pm's on the whole board.
The encryption protects us from leaving an "exhaust" of readable pm's. Like there was a board I was on for a while, then moved on from years ago, but my old PM's on it are still potentially retrievable, which doesn't seem good.