Obviously it's to identify the wind direction such that if you are in an area sheltered from the wind but hitting into a windy area you will be able to determine approximate direction. To allow DMDs would mean the software would have to ensure that the compass is not enabled for the golf GPS (which it is for the car GPS). Then you have an argument as to whether the compass facility is on or not and then you get another argument. I would imagine the R&A took the simpler option of making illegal all DMDs with a built in compass, whether enabled or not.
Personally I don't see the compass being any real benefit for the vast majority of golfers and is probably one that will be discussed time and again by the R&A.
However, I have a CaddyLite because it is easy to read and, just as important, waterproof. I wouldn't like to see my smartphone getting soaked and ruined in the typical weather we have here in Scotland.