That prevents people from being taxed out of their home, without creating a situation that makes it hard for people to buy new homes.
The Deschutes (Oregon) County Tax Assessor's office made a really good video explaining how three almost identical houses in the same location can have completely different tax bills:
In addition to what the video says, I wanted to point out that the 3% hard annual cap you mention is only on the property's Maximum Assessed Value, which is only one of the many inputs into the computation for a property's tax bill. For example, one thing that can cause taxes to go up more than 3% are general bonds approved by voter measure.
Portland Commissioner Steve Novick also wrote a really good article about all of the problems with Oregon's tax system and made some recommendations: