it is for geometry, so that one doesnt have toe overlap with the front wheel on a small frame, and to keep the seat post frame angle at not too much of a steep angle, also so the headtube area of the frame isnt too squarshed.

take a look at the Terry website (bikes for women) as there used to be videos made by the founder, one of which explains in simple terms with her making rudimentary drawings, to explain the reason why small frames work well with smaller front wheels.
My wifes XS frame she just got does have toe overlap, but I figure it depends on the rider on how they adapt to this and learn not to have their foot forward at a snails pace when the wheel will actually get turned a lot to either side.

I seriously thought about a Terry bike for my wife, but in the end we didnt go that route, partly because they are not in stores here, so no way to actually see and try one (and to be honest, was a bit offput by having yet another set of tires and tubes in the house, we already have 24 inchers, 26ers, 700x25, 28, 32s, even borrowed a 650 bike for a while.....so its already easy enough to make a mistake in grabbing spare tubes etc.