Think of it like making a movie. You spend hella money to produce the film, you pitch it to different companies to get it greenlighted. In this case Microsoft. They pay you for your film up front, and you get kickbacks based on performance (in this case downloads). The reason this works is because Microsoft already made their money, they made it in monthly subscribers, they break off devs to provide content to keep people subscribed and/or bring in new subscribers.
Plus devs/pubs get money on additional sales such as DLC. Plus gamepass isn't usually permanent, a lot of times the exposure of the game via gamepass may have boosted sales elsewhere, such was the case with Fall Guys (free on PS+ but same concept.)
In terms of how this helps developers/publishers? It depends on the game, it's kind of a calculated risk. If you feel that your game needs exposure, you get paid upfront, and while you may lose out on some sales, if the game is good, you may make good money off the downloads/DLC. Plus if it's multiplat, sales on the other platforms may go up. If the game is bad, you made back some of the money by getting it on gamepass, but the longterm sales may suffer. Since it's only one platform (technically 2 but a lot of PC users don't use gamepass), I'd imagine a lot of devs see it as a risk worth taking.
