There are a few reasons for
grappling. Basically it's a way to immobilise someone and prevent him from casting spells or using his weapons. So if you're facing a wizard and don't expect to be able to finish him in a single attack, you could use ready versus spell or attempt a grapple. You can still cast a spell while grappling but you need the feat metamagic still and to succeed on a concentration check. If you're facing an archer with death arrows it's a way to stop him shooting at the party. If you're facing an enemy with a powerful melee weapon or very high armor class, it's a way to bypass that weapon or armor. As you said, you could also use it to protect your other characters; but it's even better than that because the grappling opponent can't take AOOs anymore and loses his dexterity bonus to Armor Class (and so becomes easier to strike for the rest of the party). It can be more useful for a large enemy group; half of that group could grapple with your characters, making it easier for the other half to hit the party.
Once you're grappling, you can go one step further and attempt to pin the opponent. When pinned, the only action you can take is to try to break free. Also, when shooting into a grapple, there's a 50% chance of hitting the wrong target.
Regarding the mechanics of grapple, the difference with a normal melee attack is that instead of comparing an attack roll to an armor class, you compare the strength rolls of the two opponents. Large creatures and those with the feat Improved Grapple get bonuses.
MonkeyLancer wrote:I'm curious about your NPCs, have you designated classes or even NPC classes or stats to them?
The game follows advice from the Dungeon Master's Guide. NPCs use the normal character classes (fighter, cleric, wizard, commoner, warrior and aristocrat) and monsters use either their own monster class, a character class or a mix of the two. Just like PC stats, NPC stats depend on race, level and chance.