The point being that the Emperor has personally come to inspect the Death Star construction but rather than arriving in a shuttle like anyone else would he has moved his entire palace there.
With the destruction of the Death Star the entire palace staff including many of his court and advisers would die too (the price of the Emperor's hubris).
In a way it reflects what goes on in the first act with Jabba putting his court onto the sail barge, Palpatine is Jabba on a more epic scale. Like most dictators he is at heart a glorified gangster.
In terms of character it adds to Palpatine's distance between himself and the people he rules (like a cross between Hitler's Eagle's Nest and his bunker). He need never leave his palace as his palace can go wherever he rarely feels the need to visit a bit like Verne's Robur the Conqueror and Captain Nemo.
The idea of the Imperial palace docking with the Death Star was a proposed idea for Jedi which wasn't realised (possibly to save money). Like so much of the Star Wars universe it was pinched off Dune and the mini-series based on that book had a good stab at trying to get it to work with the view out of the windows shifting from crystal spires, to space, to desert.
Adding it to a special edition of the film could make story sense if done correctly and could make the film visually more different from ANH (something it resembles too much already).
It was the same rationale behind suggesting re-introducing the two Death Stars idea from earlier draughts of the film.
This palace could dock with more than one Death Star so if the two Death Star idea were used it could dock with the Endor Death Star at one point of the film and the secret Death Star before Luke comes on board (thus adding to the audience surprise in that scenario).
If you moved the throne room scenes to Coruscant Palpatine and Vader are in no immediate threat.
The Rebels and the audience have no bait to the trap to follow.
The tension is tied only to what is happening in the room and not to all the other conflicts which interconnect in the final act.
If you really need a scene on Coruscant a sequence with the Palace rising into the sky and shooting hyperspace might be interesting to look at (I'm not sure if it is necessary though).