So the way it was explained to me, the idea was that you’d get a larger character pool played by participants, since random character select from within your pool is not possible. So you could pick a character like Lum (generally strong, but with really vicious CPs in DeGrey and Argagarg) and be able to play him without running into either CP as soon as you win.
It probably doesn’t help characters with a lot of bad match-ups much, and it doesn’t help you if you happen to run your Oni/Lum/X team into a DeGrey/Arg/X team. But you have better odds of playing a character into match-ups other than the most favourable MU (as you CP them) and the least favourable (as they CP you).
Probably this leads to a win-more scenario. Standard conquest means that the loser has the greatest possibility to have a counterpick against their opponent (three characters to choose from after 1st loss). If you keep the “you must play all three chars before you can select one you have already played”, that increases the chances that it is beneficial for the winner.
It’s not quite as bad as “losing character is eliminated, set ends when one player has no characters left” but it probably puts more weight into the first blind-pick than would be good.