There are several differences between using a pen for input and using your fingertip for input.
First of all, your finger probably doesn’t taper down to a pointy-shaped millimeter-wide piece of plastic. In other words, your finger is a relatively large, relatively blunt pointer that isn’t well-suited for the fine tasks that are done so well with a mouse.
Secondly, you likely don’t have the electronics embedded in your finger for hovering over the digitizer. Every time you touch the digitizer is a tap/left-click. This is bad if you’re simply trying to move the cursor around without lasso-selecting anything.
Also, if you’re a normal, human user, you probably don’t have a ‘barrel button’ on your finger for right-clicking.
Thus we introduce the touch pointer. It’s large enough to see on-screen at all times. It fades away so that it doesn’t become a distraction when you’re not interacting with the screen. It has the familiar shape of the two-button mouse, which virtually all Windows OS users are acquainted with. You can touch the ‘body’ of the mouse and drag it around without tapping or selecting things.
When you get tired of it, you can touch the touch pointer taskbar icon and turn it off.
Simple design. Easy to understand. Useful.