Why do grad schools need to know what other schools you are applying to?

What jayder said: they want to make a judgement call on whether they're your first choice or a backup option, so that they can make the right number of offers for the places available, and their own sense of where they stand on the pecking order will guide them. I don't see any reason not to be honest, and the admissions office should be smart and experienced enough to deduce that they're your top choice.

I've done grad admissions a number of times for two different universities, in a humanities department. We've never paid any attention to this.

I think I left this question blank when I applied. It struck me as the one question really worth ignoring on the applications. I couldn't fathom how answering honestly could help me.I could definitely imagine scenarios where answering honestly would hurt me.I didn't have a fixed, honest answer that I could give anyway, because I was simultaneously submitting some applications while deciding whether to submit others.It struck me as a survey question, not an actual informative/screening question. I'm the type to overdisclose out of an abundance of caution, and leaving this field blank didn't give me the slightest pause that I was somehow being secretive or dishonest. I got into great schools. If such-and-such program really is your top choice, make sure you have communicated that fact to them. If your merits can get you on the cusp of admission, then that fact can definitely make the difference in knocking you into the basket. Tell them. Good luck!

At a highly specialized program with a fairly clear set of peers/friends worldwide, the list of schools an applicant provides often reveals right away whether that applicant really understands what kind of program they're getting into (it's a plus if they do, though you can often guess their top choice and read the applicant as headed there), or whether they're applying to a selection of "top 10" schools (that's understandable, if a bit calculated and perhaps unenlightened), or whether they're applying to a region (sort of understandable, but generally a pretty bad sign), or whether they have really strange, possibly ill-informed criteria (also a bad sign). But I've never seen or heard of it being an indicator that makes or breaks an application. Even people whose applications scream "I'm a local who doesn't know that much about your department's specialty" sometimes get in, if other factors hit close enough to the mark.

I've applied to and attended a couple grad schools. None asked this. I'm in the process of applying to another at the moment - this also doesn't appear on the application. Perhaps its related to the subject you're studying but I think you can safely ignore it.

Ditto Monsieur Caution-- it lends insight into what type of schools you regard as a "good fit" for you, which in turn tells them how good of a fit you are for their program. For example, if schools A, B, and C are all great for your interests, but X and Y are not (even if they're otherwise prestigious schools), you want to show them that you're applying to A, B, and C. But I can't imagine anyone holding it against you if you left it blank...

We used it as marketing information to see who we had to compete with. But that could have been just us.

When I sat in on admissions meetings at Law School, that question was ignored by the people making the admissions decisions. It was for the marketing and recruitment committees, like danteGideon says.

I asked the head of the admissions committee for my grad program this same question a while back and he said it was interesting for the committee to see what kinds of programs their candidates were considering (he made it sound like a fun trivia project each year) but the admissions decision came down to things like research interests, academic record, writing, coachability, etc.