First, it destroys the traceability of notes (because they go into the FOBT machine with one set of serial numbers and the machine is going to pay out other notes and coins in different denominations). And any cash that investigators are going to track through seizures targeting an organisation gets slowly distributed through a community via its gamblers.
Secondly and more importantly, it provides provenance to the money. The gambling money mules (inveterate gamblers who are often addicts, lower ranking gang members, or the dealers themselves) can now move very large amounts of cash around on the street, because if they are stopped by police with large amounts of cash, they have a receipt to show it is what the machine paid out! The money they are carrying is the proceeds of legal gambling, not the proceeds of drugs. It's cleaned.
