Question about spacers

The following question is for a 20 year old hybrid (I don't think it matters, tho.) with threaded headset. What exactly is the purpose of spacers and what happens if you remove them or other rings from the headset? Obviously, spacers are to fill space, but for what? You can set the height of the handlebar by tightening the screw on top, so either I'm really stupid, having a brain fart or am now too old to remember anything. I recently removed the attachment which held a cable (old style hybrid, I think) and was wondering what would happen if nothing replaced it. I now only have 3 parts - threaded top race, basket attachment and top locknut. I'm still alive and safe, so obviously I don't need any spacers. Can anyone enlighten me?
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