Could someone explain why this is might be a big deal?

I remember playing with nested virty some years ago and deciding it is a backwards step except for PoC and the like. Given I haven't personally run out of virty gear, I never needed to do a PoC.

It is great for isolation. There are so many VM based containerization solutions at this point, like Kata Containers, gvisor, and Firecracker. With kata, your kubernetes pods run in isolated VMs. It also opens the door for live migration of apps between ec2 instances, making some kinds of maintenance easier when you have persistent workloads. Even if not for security, there are so many ways a workload can break a machine such that you need to reboot or replace (like detaching an ebs volume with a mounted xfs filesystem at the wrong moment).

The place I've probably wanted it the most though is in CI/CD systems: it's always been annoying to build and test system images in EC2 in a generic way.

It also allows for running other third party appliances unmodified in EC2.

But also, almost every other execution environment offers this: GCP, VMWare, KVM, etc, so it's frustrating that EC2 has only offered it on their bare metal instance types. When ec2 was using xen 10+ years ago, it made sense, but they've been on kvm since the inception of nitro.

It's when you want to do stuff with your own VMs and don't want to pay extra for bare metal machine, basically.

There is no real reason to use it on hardware you own; but in case of cloud you just not always have enough to do to excuse paying for whole entire server

When you run nested virt, you can do multicast in Cloud between the nested VMs. You can’t do multicast across VMs inside the Cloud.

Basically you setup a small LAN with HyperV or something similar (I have only done it with HyperV)

Hopefully it mean that you can finally run a network simulator like GNS3 https://www.gns3.com/ in an AWS instance.

You can now run VMs inside a cheaper AWS instance instead of having to pay for an entire bare-metal instance. This is useful for things like network simulation where you use QEMU to emulate network hardware.

If you have some workload that creates VMs, now you can run that workload on EC2 rather than having to use bare metal or some other provider that allows nested virtualization. There are many many such workloads. Just to give one example: testing a build system that spins up VMs to host CI jobs.