I'm assuming it gives the players better puck handling abilities, but how? Wouldn't tape overlaps effect the handling? Also why don't the manufacturers add similar material to the blade of sticks?
There are several articles that outline the benefits of taping a hockey stick. Check out this article and this one from livestrong.com. I am posting below some excerpts from the former article to cover the benefits of taping a hockey stick.
Wood splinters, especially when it is worn away by consistent friction with the puck. By taping the wood blades of their hockey sticks, players protect the surface and edges from breakage, extending the life of their equipment.
Moisture infiltrates wood and it can cause the material to warp. Hitting a puck with a bent-out-of-shape blade is as effective as playing ice hockey in your flip-flops. The porous wood absorbs the moisture from the ice rink unless it is sealed. Players use tape on their blades as a moisture repellant.
On the website ESPN the Magazine, retired professional ice hockey player Brian Rolston says that modern fiberglass hockey-stick blades are slippery and they do not make good contact with the puck. He says that wrapping them in hockey tape helps the player direct the puck and shoot it where it needs to go. Another ice hockey retiree, Bobby Nystrom, adds that when a player receives a pass, the tape around his blade cushions the hit, keeping the puck from bouncing off.
Regarding your opinion that manufacturers should provide such material coating on their products to avoid the need for taping, the main problem is friction. After a few uses, whatever material is coated will start to wear off. Rather than having a partly worn off coating on a stick, it's better to use inexpensive tape before each game to ensure a consistent level of control and discard it after use.
Friction and padding are part of it, as @CodeNewbie said.
In addition to that, tightly taping the blade changes the structural dynamics - the blade feels stronger, more solid. There's a different feel when you tape around the blade than you would get by sticking a layer of tape onto the blade, which can't be explained by friction and padding.
After a skate or two, the bottom edge of the blade starts to cut through the tape, so it's no longer tighly holding the structure together. Hence the need to re-tape the stick frequently.
Source: That's how it feels to me.
Given that the tape supports the blade structure, I'd be surprised if the tight taping didn't extend the life of the blade; even though though they're no longer made of wood, blades do take a beating, chip and break.
But any protection from tape is more of a happy side-effect; the primary purpose is puck feel.