Supposedly simplicity, living room aesthetics, a modernized control scheme, and price.
These are the main things Valve were targeting. Console simplicity in a small, low impact shape that fits in well with home theater components in a living room at a price competitive with consoles. Part of the living room aesthetics is it's coming with a controller you can use from your couch or easy chair.
They are also trying to improve upon current gamepad designs with the controller, which is the main reason Steam Machine's launch was pushed back. They've maintained they also want the controller to be open to any desired configuration or profile to adapt to a potentially wider audience.
It's really going to come down to price, controller design, title support, and upgrade-ability. If they don't succeed there, it won't be any better than having an affordable PC.
As for Steam OS, keep in mind anyone with a cheap PC can DL it on a friend's PC, put it on a flash drive, and install and use it just like they would with a Steam Machine, So that's not really going to be a big difference maker in and of itself.
Like I said, the real thing with Steam OS is simplicity, not being free, because it's free whether you use it on a Steam Machine or regular PC with KB/M. So it comes down to what you call a Steam Machine, and what you call a PC. The only differentiation is really the controller if both have Steam OS.
This is why Valve is working so hard on trying to get the controller right. They know that one thing can make or break them. If Steam OS takes a while to get lots of games, you can always put Windows on a Steam Machine, but it really comes down to whether the controller is worth having.