How do airlines use the "Emergency contact" some of them ask to provide?

I've booked a flight with Sky Airline from Argentina to Chile recently, and the form asked me to list an emergency contact. What's the point of this field / when is it ever used? Is this basically in case the plane crashed and the airline needs to find the families of victims to pay out compensation?

Is this basically in case the plane crashed and the airline needs to find the families of victims to pay out compensation?

Yes for accident or death notification, or if you have a medical emergency and they need to ask someone if you have severe allergies or things like that which you might not be able to answer yourself if you are incapacitated.

https://www.finnair.com/en/frequently-asked-questions/bookings-and-payments/what-is-an-emergency-contact-and-how-can-i-give-it--1890592

You can add an emergency contact to your booking so that we know who to get in touch with in the event of an emergency. You can add the information via Manage booking. Providing this information is voluntary.