The filter does exactly what the title says it does, filter the outside air that flows into your car. All the air you and your family breathe with the windows up passes through this thing, so it's important to make sure it's working properly. The units I use also have a charcoal residue built in to the filter which eliminates outside smells from coming into the cabin!
I change it on almost every major service I do, and here's why:
This is a picture taken by head technician Anders at Swedecar in California showing how clogged up the housing around the filter can get. The cowl cover that typically covers the filter is removed in this photo. Anders reported that by clearing out the housing and replacing the filter, the customers air conditioning temperature dropped by almost 10 degrees!!!
Have you had yours replaced?