What is the reason the iPhone wipes after a couple of failed password entries? My mac has a feature called FileVault. In theory - if you don't have the password, you can't get access to the files. (Encryption). 

To me - this feature should be sufficient on the iPhone to not need wipes.  

By wiping - I mean the feature under Settings > Touch ID &amp; Passcode > Erase Data.

What I see if that after a couple of failed password attempts, the password entry goes into warning mode, then it goes into complete wipe mode. 

Why do you need wipes and encryption? (My work makes encryption the default and locks it in so you can't change it with a policy). 

Where this gets concerning is when your kids are playing with your phone, not knowing that they're deleting all your photos. 

My question is: What is the reason the iPhone wipes after a couple of failed password entries? (ie why offer this feature at all when the phone is completely encrypted?)
As the other answer by Rash Mendis pointed out, the reason why your iPhone wipes all data after 10 failed passcode attempts is probably because you enabled said option 'Erase Data' as shown in the screen shot.

The motivation behind this is to prevent a thief from accessing your data too easily. I imagine there are still a lot of devices using only a four-digit-code to lock the iPhone, and this is all what prevents anyone from accessing your private messages, contacts, Facebook account, whatever. If your data would not be wiped after some failed attempts, all a thief would need is enough time for (max.) 10.000 attempts (probably less), and your data is compromised. It is quite easy to assume that a criminal would get your data in not too much time.

With the erase option on, you have at least a reasonable chance that albeit your phone was stolen, your data might not be accessed. It is basically the same rationale as with entering a wrong credit card PIN; after three (?) attempts your card gets locked.

And finally, if you are certain that your passcode is secure enough, you can still disable the erase option (which I would not recommend, anyway).