This sysctl enables those who would rather panic than kill a process, when the system runs out of memory. Usually, this is most useful when the OOM condition is due to mismanagement of memory, on a system where the applications in question don't respond well to being killed.
In theory, if the system is properly managed, it shouldn't be possible to hit this condition. If it does, the panic can be more desirable for some users (since it can be a good means of finding the root cause) rather than killing the largest process and continuing on its merry way.