I agree. It doesn't seem necessary and I personally wouldn't use it (since I self-host).
Plus based on what I'm seeing over at Lemmy.world... running an instance can be non-trivial if it gets popular. Not sure you would want to invest the time and resources on that rather than developing Photon itself.
Continued development on Photon would be giving something in return.
I can't speak for everyone, but I donated to thank you for the work you have done and to encourage you to continue improving Photon. That would be enough for me.
I don't really need another instance (though if you want to you can), I would just prefer the money go to you and/or back into development of this and adding new features like a button in comments for image links in markdown
No, people give you something in return for what you did with Photon. I do not need to host an instance either and have no idea what you should do with the money. Nobody tells you what to do with it - if you want to splurge it, splurge it, if you want to invest it in hardware or hosting costs, do that.