Theater, training room, briefing/presentation room. Lots of uses. The Enterprise has a crew of 400 and is supposed to spend years in deep space exploring. They need different entertainment options available at the same time. While not full of families like Ent D, we already see the crew enjoying games and music. Roddenberry stressed that Starfleet is not what we think of as a military organization so having even the ship be more geared to the arts makes sense to me. Having a space where the crew can put on or bring in performers or other uses for the space while leaving the gym, rec room, or any other space available for other crew makes sense.