Mongolia's existence as an independent state offered more to the Soviet Union than it did as a direct part of that union. In the years immediately following the Bolshevik Revolution, there was a belief within Russia and among socialists internationally that Russia's revolution would trigger others around the world. Until the end of World War II, however, there were only two communist nations in the world: the Soviet Union and Mongolia.

In 1921, Mongolia had been overrun by the Red Army and a protectorate was installed. As the Mongolian People's Republic, it became in 1924 the world's second communist state. Officially it was independent, an example of the revolution exported. In fact, it was a Soviet satellite not dissimilar to those seen in eastern Europe following WWII.

From the 1920s through his death in 1952, Mongolia was ruled by Horloogiyn Choybalsan, who slavishly followed Stalin's example and earned the title "Stalin of Mongolia." Mongolia was predominantly agricultural, but that didn't stop Choybalsan from instituting a series of five-year industrial plans akin to those of the Soviet Union.

In 1946, in negotiations with Stalin, Chiang Kai-Shek obtained an understanding whereby China would recognize Mongolia as an independent country. It was an attempt to convince Stalin to keep Mao's communist Chinese forces in check, and internal documents reveal that it may have worked: Stalin encouraged Mao to stay in northern China and not press into the south, the better, perhaps, to create an easily controllable puppet. Mao didn't listen, of course.

As an independent country rather than part of the Soviet Union, Mongolia was the Soviet Union's useful tool for trade and diplomacy. Though landlocked, it could participate in international relations and give the Soviet Union an easily controllable voice in that theater. Mongolia's largest trading partner was the Soviet Union, and some evidence of the closeness between the two countries can be found in the fact that soon after the fall of the Soviet Union, Mongolia's communist government followed suit.

The last sentence of the 1979 constitution of the Mongolian People's Republic states: "In the MPR, the guiding and directing force of society and of the state is the Mongolian People's Revolutionary Party, which is guided in its activities by the all-conquering theory of Marxism-Leninism."

For more reading on this topic, see Milan Hauner's What is Asia to Us? Russia's Asian Heartland Yesterday and Today and the third volume of E.H. Carr's The Bolshevik Revolution 1917-1923.

To the responses stating that Mongolia was a buffer country. That's technically true, however the truth was Mongolia simply wasn't a priority to Russia. They had China under their sphere of influence, so there was little need to have a buffer country on China's northern border, especially since that northern border is sparsely populated, half mountainous non arable land and half subdesert semi arable land. Mongolia looks big on a map and big in a history book, and their mineral resources could have provided a great resource if China or the Soviets decided to industrialize the infrastructure, however they chose not to. Russia has numerous reserves underneath their own country that they still to this day haven't bothered to mine. To the Soviet Union, Mongolia offered little strategic value.

Edit: Dug up a text that I read in college about the subject. Source

Much of Central Asia was absorbed into Russia or put under de facto Russian rule prior to the October Revolution. The timing is important for understanding how Russia became involved in Caspian Central Asia. Russian expansion into Central Asia from the 1860s onward arguably had two goals:

1.) Defense. This has two levels. On the one had, it was defense against the Central Asians, and, yes, the decedents of the Mongols. The one successful ground invasion of Russia (before it was even Russia) was by the Mongols in the Thirteenth Century, proceeding from the Central Asian steppes westward toward Kievan Rus'. Russian leaders saw the plains surrounding the Caspian as a potential highway into the motherland. On the other hand, southward expansion became a defense against Great Britain. Britain's position to command both the North Sea and Central Asia (via India/Pakistan) provoked Russian fears of encirclement. This led to considerable imperial competition over Central Asia between Russia and Britain, tending to center on Afghanistan. Mongolia's terrain and position kept it out of Russian sights during this period. Russia was not concerned with Chinese aggression in the same way it was with the British, and Russia collaborated with the Chinese to push Britain out of Central Asia.

2.) Prestige. Russian foreign policy has generally been primarily oriented toward the West. When westward expansion was possible, imperial Russia usually took that route. Since Peter the Great, Russia longed to compete with Western Europe and prove itself an equal. When possibilities for westward expansion were unavailable, Russia would expand southward instead in order to prove its imperial chops and position itself for further westward expansion when the European situation was more favorable. The largest period of southward expansion into Central Asia occurred at the end of the Nineteenth Century, as Germany was united, Russia was bested by the Ottomans in the Crimean War, and European great power competition was fierce. Meanwhile, Persia was in decline under the Qajars. Russia's at-the-time chancellor, Alexander Gorchakov, recognized Russia's limited possibilities in Europe and accordingly maneuvered Russia to expand into the emerging power vacuum in Turkestan. This allowed Russia to preserve its imperial glory while awaiting a time at which the European situation was more favorable, and it could pivot westward once again. Mongolia afforded neither the ease of conquest, nor the strategic location of the other Central Asian territories.

Russia's Central Asian conquests were a response to the challenges of a particular time, not a greater strategy of Asian expansion. In addition to the natural border of the Altai mountains, a Mongolian conquest was deterred by the country's irrelevance to Russia's defensive and imperial strategies.

Partly from Tournament of Shadows by Karl E. Meyer and Shareen Blair Brysac.

The answer lies within the development of Tsarist Central Asia. Expansion into Mongolia was not a part of the drive to colonize the frontiers of the Imperial Russian state, nor did its population have any relation to the Turkic peoples of colonial Turkestan. For the Imperial Russian anthropologists who originally developed an ethnographic map of Central Asia, Mongolia was out of their orbit. The establishment of titular national republics in Soviet Central Asia was built on the original colonial data established by the imprint of colonial rule, which dates back to the Russian conquest of Samarkand in 1867. By contrast, Mongolia only became a satellite state of the Soviet Union in 1924 - hardly enough time to establish a comprehensive ethnic mapping of its populace.