It was, and still is, the best interface I've ever used for navigating through large, grouped lists.
From a technical point, that is correct. From a usability point, it isn't - because it took a previously digital control (button pressed or not) and made it feel analog (just turn the wheel).
And it's much easier to precisely navigate over large distances with an analog(-feeling) control.
Of course it wasn't only the wheel that made a difference, but it was the mindset behind it: Take things that to most engineers are functionally equivalent and choose the one that makes it easier for the user. Or find something that makes it easier for the user.
That is a lesson that many of the products of our industry are still missing. What matters is not only functionality, but how easily and intuitively I as a user can access that functionality.
The smartest thing they did with the click wheel after the wheel itself was the little clicking noise they played as you spun it. It made it feel mechanical, and gave you immediate feedback about how fast you were going.