When listed on the phone the Store app will automatically detect any apps that are already installed. This side load method will only install apps that are available in the Windows Phone Store and will only work if the version of the .xap file on the microSD card is the same at that in the Windows Phone Store (i.e. the latest).
The feature is useful for those with limited connectivity on their device (some games and games are more than 50MB in size), or if you are are setting up multiple devices. It might also be handy for those who want to keep a specific list of apps on hand, but don't necessarily want to keep them installed all the time.
The manual download link for any app or game can be found at the bottom of the left hand column on the listing page for the app on the Windows Phone website (look for "Download and install manually").