The first thing that comes to mind when you pose this question is the question of money. Guesthouses are typically cheaper than hotels. However there is another perspective that makes a guesthouse my first option when I travel.
Travel, in my humble opinion, is not just seeing the sights. It's also about cultural immersion. I try my best your best to experience life as if I were a local. How can this be possible to feel like a local? Well for starters, I don't stay in hotels with amenities. First, spending money at that rate would dramatically reduce the amount of time that I would have to travel. Second, I would be way too buffered from the cultural experiences that I'm attempting to have. Finally keep in mind that is some parts of the world if the locals can't afford to stay there, should I?
In China I stayed in a Hutong, in Thailand, guesthouses were the way to go. In Cambodia and Vietnam the same. A guesthouse can vary from something that looks like a hotel to staying in a spare bedroom in the home of an elderly couple.
Moreover for me, it's important to support local communities. When I stay in a true guesthouse I feel that I'm at least giving my money to an individual small business than a large hotel conglomerate. That makes me feel good. In South East Asia, with the exception of Bangkok, I have stayed in guest houses. These have mostly been run by families or widows that are using homes as a way to earn a living.
In many cases the the experience you have while staying at a guesthouse can be more authentic. It gives you a chance to interact with people in a way that you would not be able to in a larger environment. The rules of the game are different. You are not there as a tourist, but more as a guest. In many cases the food that is prepared is done right there by the wife or owner. You are more likely to share a beer and good conversation with a typical family than you would otherwise. These days when it seems travel has become so commercialized, with New York City style bars and restaurant almost in every city, I find it quite refreshing that you can travel like this.