See the screenshot.
As administrator, using site Administration -> Security -> Site policies, I can set Blog visibility to any one of five levels, the highest being "world" (let's call this level 5) and the lowest being "users can only see their own blog" (let's call this level 1). Suppose I select "all users on this site" (i.e., level 4).
When a user creates a Blog entry, he also has some control over who gets to see it, obviously constrained by the site policy. For example, if the site policy specifies level 4, the user should be allowed to choose any level less than or equal to 4. If the site policy is level 3, the user should be allowed to choose any level less than or equal to 3, and so-on. However in the current implementation, the user is only given two choices: "anyone on this site" (level 4) and "yourself" (level 1) – see screenshot. Users cannot specify an intermediate level.
Here is a use case for being able to specify intermediate blog levels. Suppose I wanted to Blog on moodle.org some comments that might be construed as critical of Moodle. I would not Blog these comments if they were visible to World (the current site policy). However if I can Blog them so that only the group of "Particularly Helpful Moodlers" can see them, that would be a different story.