It scalds the tea leaves and extracts compounds that make the tea bitter or destroys some of the more delicate flavours. The exact temperature depends on the tea. When I was buying Dragon Well tea (Longjing) in China they explained it very well, but even went so far as to say that many of the health benefits of tea (especially Dragon Well, but others as well) were reduced by using water that is too hot.
Personally I've found tea and coffee taste better when brewed with water that is under 90°C.
I have so many questions...