Something I have always wondered: What is the point of GUTS?

Alright, so GUTS makes characters take reduced damage as they approach being KOd, correct?

This is the mechanic that makes Potemkin seem like he has a billion health as his bar approaches 0.

My question is, in terms of strategy, how is this functionally different than just multiplying the characters total health amount by some number that makes the overall health pool amount to being about the same and then just... not... having GUTS at all.

Is it just to make it hard to judge whether moves will finish people off? Really, what is the purpose of the mechanic? It seems entirely cosmetic to me.

What am I missing?