Laser hair reduction works by targeting the pigment (melanin) in the hair follicle.  Melanin then absorbs the heat delivered by the laser and transfers it to the nearby growth control center of the hair follicle (stem cells).  Heating of the stem cell area causes the hair to become lighter and finer until it is small and fine enough not to be seen above the skin surface.  The hair is not actually destroyed, nor is the hair follicle scarred.

Under certain conditions, like hormonal changes during menopause or in women with polycystic ovary syndrome, the treated hair follicles can get activated again and start producing dark terminal hairs that again grow above the skin surface.

Because the laser actually preferentially targets the darker areas, the major potential side effect is burning the epidermis (surface layer of the skin), since it also contains melanin.  That can result in darkening or lightening of the skin. If the burn goes beyond the epidermis into the lower layers of the skin, actual scarring and skin texture change can result.

It is extremely important to make sure that laser hair removal is not performed on anyone who has had sun exposure to the area to be treated within at least a month before laser hair removal.  When the skin tans, the melanin darkens and the difference between the skin and hair color is significantly reduced.  That makes it more likely that the laser will hit the pigment in the epidermis and cause a burn.

It is also important to carefully and accurately determine the person's skin type prior to the procedure.  That is done by means of a detailed questionnaire, and not by just glancing at the skin and making a judgment.  Skin type determines the proper settings on the laser that will also minimize the potential for side effects.

Finally, you are absolutely right. Body hair is there for a number of evolutionarily important reasons.  Ultimately the desire to keep or remove hair is determined by the individual.  The great thing about laser hair reduction is that, should a person choose to remove the hair, it can give excellent, long lasting results.  All the other available hair removal methods, like shaving, waxing or using depilatories, are temporary and may have their own side effects.

To decrease the risk of side effects, it is best to have the procedure done by a board-certified, trained and experienced physician, to do careful skin typing and to avoid sun exposure for at least a month prior to treatment.