Windows Server is basically useless in the modern era of containers and cloud computing. If they’re ever going to compete in that space long term, they need a minimal viable version of Windows that can scale however customers want.
They also have embedded Windows, which is the type of thing that runs on ATMs or IoT devices. Not sure why anyone would use it instead of Linux but I guess the license fees are worth having someone to call (or blame) for some companies.
I'm not sure I follow that server is useless. In the SMB and Enterprise, it's still required for a domain/exchange, user management, software distribution, etc.
Yea, it can be virtualized, and is, even in SMB. It's pretty standard to run a VMware host even there - it's a better cost against utilization. More importantly, virtualized server provides better uptime, better load balancing/management, a much better backup process, and brings a bit of disaster recovery capability to the SMB space.
In the context of the people who did it, I think it's just a "bit of fun"; a hobbyist hacking project to see how far you can take something.
But that said, it is absolutely insane how much disk space Windows needs. Windows Server 2022, with its most minimal "core" installation option, still has a minimum requirement of a baffling 32GB of hard disk space. By comparison, Ubuntu Server's published minimum requirement is for only 2.5GB (with more specialist minimalist distros like Alpine coming in at well under 1GB).
Of course those sizes are without a kernel. Typical everything-included distro kernels are generally a few hundred MiB as they include drivers for everything that might be needed, but a custom build for known hardware can reduce that to just a few MiB.
I think this could be useful as a server OS. If you wanted to run 1 specific piece of software as efficiently as possible, you could start with this DOS system and add in only what you need.