Do you always understand why the project you've assigned-to is actually needed?

For the most part I do. Every now and then we get one of those "vanity projects". Some executive wants a project because it sounds cool. What ends up happening is it is delivered and they never use it because it did not make sense. The last time it happened, it was my CIO wanting an application that will help him track activities in the department. I knew it was not going to work. No one else wanted it which means no one else would use it. We had to do it anyways and it is now sitting on the scrap heap of wasted projects.
This is one of the reasons that we are implementing a PMO. To ensure projects make sense.

Similar to vanity projects, I've also seen project sponsors who continue with a project that doesn't make sense in an effort to avoid the embarrassment of a failed project.