It's human nature to want to improve in multiple areas, because by doing so we gain experience which can then use to adapt to various life scenarios and eventually overcome them. Essentially (and Darwinistically) it's what made us what we are now(yeah I admit we are not THAT great, but at least in Earth's domain I'd like to think that we are the most developped species :).
Games-wise that means that variety is more than just a fun factor of a game. It also helps improving our skills but more importantly, our inherent ability to adapt to various situations. Siituations that require us to use our acquired knowledge to overcome them, also known as problems. Problems vary in different factors and categories, but one common characteristic is most certainly the difficulty of the problem. As computer games are essentially consisted of problems variant in type, the game itself can be attributed the difficulty factor.
On that topic, I'd like to address the Demon's Souls difficulty hype all over the net. This is not a difficult game, but an irritating one. I'll just analyze my case.
I play for 30-35 minutes in a level defeating all the enemies along the way. Which proves my case that I posess the skills required to overcome the obstacles at hand. Then I encounter a boss for the first time. An enemy i know nothing of. To spice things up, he takes 3/4 of your health with one hit. Long story short - you die. Up to this moment I haven't found a statement on the internet that implies that someone defeated a boss first try(not before reading walkthroughs and strategy guides at least). So you're taken back from the beginning. Yes, you have to pass all the trials that you've proven that you're better than. Another 30-35 minutes of doing things you already did, solving a problem you already solved all for a CHANCE at the boss again. Which in 80% of the cases means that you'll die again, and go back from the beginning again. Imagine that you play FIFA and if you concede a goal you start at the bottom in the league table with 0 points, or each enemy's succesfull hit brings you back to level one. That does not improve your ability. That just makes you Sisyphus with a long way ahead of you. Not to mention the bossfights. Big healthbars and repeating the same attack pattern over and over. That's not a test of skill. That's a test of nerves.
And that's just the aspect of difficulty. I will not analyze the entertainment value, since it treads onto the grounds of subjectivity.(I mean , there are people with masochistic fetishes aren't there?)
So, to summarize what I'm meaning to say. Difficulty is essential in order to improve our skills (at everything, gaming included) but increasing to the severity of punishment does not increase difficulty, it only increases frustration. And frustration is the exact opposite of what games are about, at least for me.