It's not just sex: there are a lot of things in Erfworld that are there for no reason. Slaughterhouses and smokehouses
serve no real purpose. Gems represent money, but not because gems are rare or valuable - they just convert directly and perfectly into cash, and cash can be converted perfectly into gems.
There's no evolution in Erfworld. Everything is created. So, the short answer for 'why is there sex' is that someone wanted it there. Since everything else in Erfworld seems to be centered around war, I'd hazard a guess and say that going to war over love
needed to be factored in.