It’s often even not about money, but growing the audience. With games, you basically have to make back what making a game cost – work hours, outsourcing, engine licensing and such. If game sells at all, it’ll usually happen in first couple months. Games, generally, have fixed production cost, unless you’re maintaining support teams and multiplayer servers.
Now huge discounts will attract players, and since many players stream or make videos, it’ll attract even more players. Discounts tends to be time-limited, but extra publicity will get you new sales even after the discount window.
Also, discounted games get extra publicity on Steam, like getting “on sale” pages and such.
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