Balance is directly related to difficulty. If a game is too easy, a player will be bored, and if it is too difficult, the player is frustrated. A medium between these conditions is sought for, and if the player can be perfectly nudged between the two, where a proper tension and frequent rewards are maintained in a steady rhythm, the player will achieve flow. Balance is the art of designing flow.
Now I'ma drop some history on your ass.
IN THE BEGINNING Edit
Many games from the dawn of video gaming also were designed with a significantly higher difficulty level than we are used to with modern titles. Most game developers at the time primarily made games that they themselves enjoyed, which meant that the game typically had a higher skill level, given the target audience. I would argue that as difficulty levels were re-balanced to be easier, this had the direct effect of making them more inclusive, and garnered a larger audience. Core gamers might be turned off by the lack of difficulty, but the much broader audience allowed titles that went for this approach to sell far more than the industry had previously.
In effect, the designers sacrificed the tension that the core gamers sought after for the calmer rhythms that attract casual players. This had the direct effect of selling more games, allowing studios to hire more developers, and more games to be made. Quite simply, it broadened the industry so it could cater to both casual and core gamers.