Why do people buy preamps if they can directly connect amp to stereo source/phone/PC/tv?

You have to hear it to believe it. Listen to a quality preamp, then try to bypass it, source right to amp. Even easier these days with digital volume control on Jriver. For me, the sound is flat without a pre. With my tube pre (Eastern electric mini Max), the sound is alive, plucked strings sound juicy, the violin is sweeter, everything has greater presence and life. It's truly the heart of the system. 

I understand your question, mrbananapeel. (It is assumed that your amp has a volume control). If you're a "purist" who would never use tone controls anyway, why insert all that added electronics? I have run a test switching a source between a preamp input and directly into my amps (one SS, one tubed) and with the preamp set to be as neutral as possible (tone controls bypassed) and volumes adjusted. I heard no discernible difference. Not even a noticeable increase in background noise (although I'm sure it could be measured) and I consider myself a critical listener.

In one sense, it is a tribute to the preamp that it introduced no listenable distortion. On the other, there was no "improvement" in sound, at least with my equipment and  to my ears, but the preamp, as other posters indicated, offers me extensive input (both analog and digital) flexibility as well as tone adjustment if desired, all of which I use. I know people who did exactly what use are asking, that is connect the source directly to the amp. I definitely use a preamp but you don't have to if you don't want to. - Good luck, Andy

lajollaplamars:  All preamps introduce their own sonic signature, some more than others.  I have not heard the E. E. miniMax preamp, but it was once on my shortlist for a relatively inexpensive tube pre that I could roll tubes with.

For those that like tube coloration (or distortion. for you detractors), messing around with tubes is a joy.  For those that prefer more sonic honesty, you will need to spend considerably more for tubes and may well find sonic bliss with a less expensive, but well specified solid state unit.

Either way, you need a preamp - either it's built into your DAC or CD player.The preamp is not just something to switch from one source to another (which is an easy part).  The harder part of the preamp is to control the volume of the source which can be pretty expensive (not to mention tube vs ss).
The question is: which is better - the preamp in your source or some external preamp?
Eventually cost comes into play.  Therefore an external quality preamp is always better than a built-in preamp of your source because the source player was probably designed for a price point.  A good external preamp usually sounds more dynamic because it usually employs better power supplies. 

This argument is similar to which is better: an integrated amp or separate?  Sort of the same thing.  With separate you can optimized for its specific function.  With integrated there is some type of compromise.
It's hard to have the best DAC and best preamp built into one chassis.  But it's a lot easier to have the best DAC and best preamp separately.

Multiple sources, plus not all sources have a high enough output to drive a power amp, the signal needs to be amplified first. For example, I once connected my portable Digital Audio Player to my stereo amp, but it sounded very hollow and was struggling, you can basically tell it was congested and running out of breath to use an analogy.