This is a hook that can be useful for making moderation scripts, where you can filter out bad words in player names. Currently, while you can filter out messages in chat, you cannot do so with player names, which can be used maliciously to bypass those filters. With this hook, however, that loophole is closed and you can no longer use name changing to bypass filters.
Note that you cannot change which name the player will get, only reject it, so it cannot be abused to change player names against their will.