I don't know why but I still like the idea behind physical levels.

It's just they weren't implemented well. I think it would have worked better if your HP, MP, Defense, and Attack came from Physical Levels, as well as the base stats, and your Rank gave you Bonus Stats to allocate and skills.
That way physical levels would be very useful in the overall game, as in you're leveling up, and then you're class ranks determine skills and bonus points.

(right now physical levels only give stats, but if they had also given HP MP Def and Attack instead of your class they would have had the correct value I think they intended when they made this game)