I dunno about elsewhere but in Ontario the legality of a bike being on a sidewalk is based on wheel diameter to permit kids bicycles. So there ends up being kinds of adult bikes with intentionally tiny wheels, and it creates a real menace to pedestrians. Some municipalities also have age restrictions to combat this.

What are the more legitimate reasons for little wheels on bikes? I guess the goal like with this one is to have the least amount of bike as necessary?

Yes. Hence the folding.