It's a reward mechanism. It's mere existence makes it valuable.. kind of like fiat money :)
But seriously, on the micro scale, earning a single karma point feels good because it means somebody appreciates what you said. On a macro level, it lets you compete with other people, and serves the same purpose that high scores in video games do. Humans respond very well to an abstract notion of wealth, and humans are naturally competitive.
I see karma in the sense of politics. In the case of Hacker News, each person is given a vote on each of the submissions--essentially electing the best stories to appear on the front page.
This is a direct democracy, which has some shortcomings, particularly in voter apathy and the promotion of self-interests, where voters put their own needs before the needs of the whole. As the population of a direct democracy grows, it becomes increasingly difficult to accurately represent the will of the people (successful direct democracies usually emphasize consensus over majorities).
These problems are addressed in a representative democracy, where representatives are elected to vote in place of the people, as in the case of Congress or Parliament.
I believe that as online communities grow, voting systems begin to fall apart because the votes cease to represent the will of the community as a whole (the special interest groups take over the site). A common way website owners deal with this problem is by bringing in moderators or by somehow weighing votes based on some criteria, seniority or otherwise.
But I digress...
Karma is there to give people power over the direction of the community. Without karma, you would have no control over what you see, much like state-run media.
As a Cory Doctorow fundamentalist, I believe that my high karma score will eventually allow me to own Disney World.
But it could be that it's just a crude mental hack that we substitute for all the normal social signals we get when we socialize in person. We can't smile, frown, applaud, backslap, suddenly remember a previous engagement, or cough pointedly here. Even a deliberate change of subject is hard to pull off when the posts appear in arbitrary order. All we can do is use karma.
I think it represents what both pg and esr have expressed at some point: that good, or even great hackers, often don't recognize themselves as so until being recognized as such by other good hacker. Karma allows us to get an idea of how we fit on the scale and see what our strengths or weaknesses are. If you make a post / statement and it doesn't get upmodded, you want to know why; was your reasoning to shallow, is there something that contradicts / disproves your view, etc.
That's why there's the effort to keep fluff posts out; it changes it from being "hacker karma" to "interesting karma" at best and "amusing karma" at worst.
Representing something valuable doesn't make the representation valuable. I hardly ever check anyone's karma score. The only scores I know of are the leaders'.
The more karma you have, the more likely you are to reincarnate into something cool the next time 'round the wheel. Lots of karma=rock star. No karma=a snail.
But seriously, on the micro scale, earning a single karma point feels good because it means somebody appreciates what you said. On a macro level, it lets you compete with other people, and serves the same purpose that high scores in video games do. Humans respond very well to an abstract notion of wealth, and humans are naturally competitive.