Stock buy-backs reduce the number of shares outstanding, theoretically increasing the value of each share that remains outstanding. For example, if a company announces a 5% buyback, and completes that buyback in its entirety, you should see an incremental rise in the value of the stock in the area of 5% (you might not necessarily see the full 5%). It is, in effect, a tax-deferred dividend to remaining shares outstanding (taxed on higher gain on selling your shares, of course).
Another reason they are done is to buyback shares to issue in the event of an aquisition. And, if done at a time when the shares are low, the effective cost of that acquisition could be lower. For example, many banks bought back shares when bank stocks were at lows (remember when ASBC was in the low 20's). If those shares are not retired, they could be reissued at a later date -- so if they purchase a bank for $100 million, at today's price (say $37) they would have to issue 2.7 million shares to complete the purchase. But say they had 2.7 million shares in treasury that they bought back for $20 per share -- in effect, they were able to make a $100 million purchase for $54 million.