Most importantly, they become the merchant of record. In other words, they're a separate legal entity reselling your product to your end customer, and therefore

Most importantly, they become the merchant of record. In other words, they're a separate legal entity reselling your product to your end customer, and therefore they are the ones who deal with almost all of the corresponding tax and legal responsibilities. You then deal with them through a B2B relationship, in which they give you you the collected revenues minus their fees every now and then, and you provide your product to the customers they've sold it to in return. Your own accounts and tax responsibilities are dramatically simplified as a result, though typically with a merchant of record arrangement (with Paddle or any other) you trade that off against some loss of control and higher fees.