When should a restaurant be cleaned? why is this regulation in place?

A restaurant should hold a high about of hygiene as if the utensils and storage boxes/fridges/freezers are dirty, it will dirty the food and potentially cause health issues in those eating the food, most commonly food poisoning.

Also, if there is crust and sticky substances spilled onto utensils or machinery, it can cause malfunction.

In short: A dirty restaurant can face shut-down for the sake of the customers and employee safety. The regulation enforces the rule and makes sure restaurants are in clean shape.