1. Why would you even stand in line then? Why not just walk around, grab as many FP's as you can, then use those all day long?
2. How does it slow down the main line if people dont show up? Do they reserve a set amount of seats each ride for FP guests?
3. Seems like it would work more efficiently if they enforced the FP return time window?
1. First of all, Disney effectively limits the amount of FPs that a person can hold by making you wait to obtain another one. In the morning, the time you have to wait before getting another pass can be short because not many have been given out, but the time gets longer until it caps at 2 hours. That means by the afternoon, you must wait 2 hours before getting another FP (aside from Roger Rabbit which is disconnected and also taking into consideration the two parks are disconnected as well). So, you can't just walk around and collect FPs all the time. FPs also run out, so by the afternoon or evening, all the FPs could be distributed.
Additionally, not everyone knows what a FP is. I mean a lot of people just show up to
Disneyland and have no idea how FPs work at all. They may think they have to buy them or they just don't take the time to learn. Or they may not know how to maximize them by showing up early in the morning and collecting them when the two hour cap isn't in place yet. Or they think they expire so they end up not using them.
2. What happens is that the main line is feeding the ride system, but FP return people essentially "cut" in front of those in the main, or standby line. So there is no reservation of seats, but the main line moves more slowly because people are constantly "cutting" in front of them. I use the term "cutting", but obviously it is Disney sanctioned "cutting", not the line jumping you see sometimes. At some point, the FP and standby line merge (usually near the front). So the standby line people have been waiting for awhile, but the FP have only been waiting a few minutes (on average).
3. It might work more efficiently in theory, but in practice there could be dozens of reasons why a person couldn't make it back to the ride during the window. They could be eating a meal, watching a show, kid could need a nap, they could be stuck on a ride elsewhere, etc. This could mean a logistical nightmare for the CMs at the ride as folks complained or explained. Instead of doing that, they enforce the beginning time, but not the end. I am sure that Disney would love it if we would all be at the rides exactly during the time they listed, but people aren't going to do that because they are people, not robots.

So I think they have settled on spreading people throughout the day in manageable chunks.
With the FP system, they know they won't have X number of people until noon, or 3pm, or whatever. Guests are happier because they aren't standing in line, but going on another ride, or eating or shopping (more $$ for Disney). Disney is happy that the guests are happier and they are spreading folks out over the parks. Overall, I think it is a good system.