Protection rackets were extortion, plain and simple. The mobster offering protection would make it clear that they would cause problems for the business unless paid. This could simply mean violence or vandalism, but for larger companies (construction/garbage etc) it meant union action and expensive project delays.

The only benefit was that the mob would leave you alone. You might pay $10,000 to avoid a union strike that would've cost you $50,000. Other criminal organisations might leave you alone if you were paid-up with a local gang. But to be clear, these aren't really benefits since you are being manipulated by a criminal enterprise, everything that appears to be a benefit is actually serving their purposes and not your own.

The two main motivators for businesses paying for protection is the same as any other kind of extortion, blackmail or threats:

1. Is the threat credible and immediate? The NYC mafia had a reputation so strong that it stretched across the entire US. Its resources and influence at its peak were massive so it was not difficult to persuade small businesses to submit. More complex infiltration and intimidation was required for large unions and businesses.
2. Are legitimate forces capable of protecting me? Going to the police is the obvious option for anyone being extorted and this is exactly what a lot of business owners did. But what if the police are incapable of dealing with the problem? What if they are unwilling to deal with the problem (bribery/corruption/prejudice)? What if you have been compromised by associating with criminals and are just as likely to be arrested? There are a lot of factors that would make a business owner reconsider going to the police, not least of which that the mobster might take this personally and become even more violent.

The US wasn't really capable of dealing with organised crime until the late 1980s. Before then, widespread corruption, denial of the mafia's existence, anti-communist priorities and a lack of federal/local co-operation made it impossible for law enforcement to permanently dismantle these kinds of rackets. Until they could, illegitimate "protection" from the mob appeared to be more effective than legitimate protection from the state.