What role do small claims courts play in the legal system?

It's the practical-ish solution for individuals seeking monetary remedies too low in proportion to attorney fees, and requiring more legally binding enforcement measures than those provided by mediation/arbitration. The ish suffix indicates that it's not the democratized "people's court" that everyone thinks it is... We've found that it's not very useful for low-income, immigrant or shy folks which either don't feel confident enough, or are so ensnared by the legal system that they never think small claims court a viable solution for their problems. 
It also plays a great entertainment role, apparently, given the popularity of daytime shows such as that of the assertive Mrs. Judge Judy.