Why is this observational/theoretical distinction so important?

The distinction marks a difference between why we are justified in believing the two kinds of statements. Observation statements (also called "basic statements" or "protocol statements") are justified by a "direct" appeal to experience; they are the statements of science which "reach outside" the body of language and connect scientific beliefs directly to the world we experience. However, theoretical statements are different; we are not justified in believing them on such direct grounds. These statements are treated as "hypotheses" which we are justified in believing only on the basis of the "evidence" provided by the "observation statements." The observational/theoretical distinction thus marks the distinction between evidence and that which the evidence "supports," what are usually called "theories." Thus theoretical statements are admitted into science only when they can, under specifiable circumstances, be used to deduce directly verifiable "observation statements." A statement about unobservable entities or processes which could not be used to predict any observable consequences is said to have no "empirical content" or "empirical significance" and cannot form an acceptable statement in scientific knowledge.