Fakes are for people to pretend. Kind of like a fantasy novel or daydreaming. It does serve this purpose.
Generics and pirated software is different, where the value is in the unpaid use of IP protected design. Ain't nobody going to say it's right to stop generics being used in Africa to save people from aids.. Windows can cost a month's salary for people in developing countries - I don't think Bill Gates could sleep at night if he were to pursue these people for $$ just so he can get into the $100Bs.
That said, fakes for show is a side show.. the luxury companies pursue it to the extent it's in their interest, knowing it also helps to promote the brand so that even if 1 in 100 of these fake buyers were to have money one day to buy the real, they would still make money.
Besides this, bashing fake manufacturors, buyers, *ahem* China - we all have our go-to whipping boys
.. what is less clear is the psychological mechanism behind this.