I understand that the battle of Stalingrad was one of epic proportions, I understand that it was a devestating defeat for the germans because of the encirclement and all that.
BUT
Let's say the nazis ran over Stalingrad without much effort, how crippling would it have been for the soviet war machine? How important was the city in itself? Was it a special strategic point or just one of many locations where an amazingly large battle could have potentially been fought?
You're best bet is to go read David Glantz's books on the subject ('To the Gates of Stalingrad' and 'Armageddon in Stalingrad'). In my opinion, they're some of the best books ever written about the battle and will give a good insight into the battle's importance.
To briefly answer your question, Stalingrad was important to the Germans for a variety of reasons. Firstly, it was a symbolic target. What better way to damage the Soviet image by taking a city named after Stalin himself? Secondly, it was strategically important. Stalingrad controlled a major crossing over the Volga river. Although it wasn't the only place the Germans could have built a bridgehead, Stalingrad was a strategically-important location. The Germans wanted desperately to get to the oilfields in the south-west USSR and capturing them was a major objective of the 1942 "Case Blue" offensive that included the German attack on Stalingrad. Taking the city and holding a bridgehead over the Volga would have secured the northern flank of the Case Blue offensive.
Now, could the Soviets have lost Stalingrad and still won the campaign? They certainly attached a great deal of importance to holding the city. Stalingrad became a sort of Soviet Verdun, a city that had to be held at all costs. Part of this was desire to not let the Germans win a major symbolic victory by taking the city. And part of it was practical, to deny the Germans a bridgehead on the Volga.
According to historian Max Hastings, Stalingrad was not very important strategically; he classifies it as a "battle of wills," rather. Regarding the German advance on Stalingrad, from his work Inferno: The World at War, 1939 - 1945 ...
Most of Germany's generals immediately recognized the folly of this move. The strategic significance of Stalin's name city was small, irrelevant to the main objective of clearing the Caucasus and securing its oil. Hitler's eagerness for a symbolic triumph was matched by the determination of Stalin to deny this to him.
If i recall correctly the offensive at Stalingrad in itself had no strategic value, the reason the German 6th Army group was in that vicinity was to cover the German advance on the oil fields of Caucasus. Stalingrad was a manouver to cover the German advance against the Oil fields, one of the three central targets of the German invasion.
The Ideological target, Leningrad. The Political target, Moscow and the economic target, the massive oil fields of Caucasus. However due to recent lack of progress in the German invasion Hitler demanded to take personal charge over the German armies. Due to his orders the advance on Caucasus was drasticly slown, allowing the Russians to demolish the drills and reserves, making the offensive useless. However due to Hitlers want to take personal charge he insisted to take Stalingrad because:
1: It bore the name of his arch-enemy. 2: Stalingrad was hailed as one of the greatest cities in the Soviet Union, a triumph for the working class and a big industrial center. Taking it would be a moral defeat to Communism and the Soviet people.
As said. It had no long term strategic value, it did not provide the Germans with any resources, which the oil fields of Caucasus would, but the mass investments in the city was due Hitlers perogative to morally devastate his enemy, Stalin.