Typically, it is done to make the process of leveling easier and faster. This can be beneficial to the game community when it creates a social situation and bonding between the twinker (item giver) and the twinkee (item recepient) - not to be confused with Twinky. It can also be harmful if it is used to deprive other players of the ability to effectively compete in their power range.
An example of positive twinking is when new players join a guild and the guild outfits them with basic equipment, cash, etc. to help them get over the newbie hump.
Negative twinking can occur when, for instance, an Uberguild twinks its low level characters and slaughters the competition in PvP combat that is level matched.