Country of issue is particularly relevant for other forms of travel documents than passports. For example, refugee travel documents would be issued by the country where the person resides. These documents look very much like a passport and indicate that the holder can be readmitted to the country of issue.
Another example is a laissez-passer, which is issued by the country of destination to allow travel in exceptional cases (common examples are deportation/forced return or people who want to apply for asylum in the destination country).