Mail Folders

Most e-mail accounts nowadays are IMAP or Exchange - both of these keep mail on the server by default, and sync what you see in your mac with the contents of the server.

Previously, POP3 was mainly used; this worked by downloading the messages from the server. For a POP account, there was no syncing, and messages were saved under "On My Mac".

For me, it is still a great way to organize my mail. I have hundreds of mailboxes where everything is organized. It includes messages from at least 15 years of work and family. Rather than having my mac syncing all that, and using up the quota on the server, they are all under On My Mac, backed up with Time Machine. I don't need those messages on my other devices. "Live" mail is kept in the respective accounts (iCloud, gmail or my work server), and accessible also on my iPhone and iPad.

Horses for courses...

On My Mac is the local "account." It is things that are stored only on that Mac.

If you set up an email account to store things like Trash, Junk, Drafts, Send, or Archive in a folder inside "On My Mac," those items will be stored only on your Mac and not on the server.

if I deleted one of my other accounts is that kind of the purpose of that particular file?

That’s probably the primary purpose

Yes, I think you got it.

You can always drag or option-drag messages from one place to another.

(option-drag copies, which is furthermore indicated by the green + sign that appears).