Yeah, I got that question too and it made me really uncomfortable.  I also answered honestly. 

All I can speak from is my experience last year.  The firm I ended up accepting an offer from seemed to just use it for practical purposes.  After my first interview, they called me to tell me I would be getting an invitation for an office visit.  It was going to be 3-4 weeks before they started the second round because my school was one of the first they came too.  So, they called a couple times to reassure me that they were interested and asked me to call them and let them know if I received an offer from anyone else so that they could get me in for my second round earlier....

I don't know.  I had two firms ask me that question, and I ended up getting offers from both both of them.  I had told them honestly that I was interviewing with everyone because I wanted to find a firm that I would "fit in" best.  Basically gave them the same line they always say about finding people that fit with their culture. 

So no, I don't think its their business and I'm not sure why they do it.