In a room, I can make sure that there is no other person there, that there is no big monitor with solutions, notes, whatever. I can also not see whether the students has another browser open with one of the cheat-websites where one of his faster colleagues has already uploaded the solution. I'm luckily in a field where we can do open-book exams without too much problems, which makes the "hidden notes" a non-issue, but one wants to be sure that it's actually the student who solves the problem. That is much easier in a class room.

If someone can use hidden notes or google to get the answers then the exam isn't testing for knowledge or subject-matter understanding.

While it doesn't test for understanding, it absolutely tests for knowledge. Take the medical profession. There are many easily googlable facts a student has to know without google. For example a list of symptoms for a diagnosis (or better: possible diagnoses for a list of symptoms). It's not the only thing, but it's part of the education.

Or in physics (my field), I do want a student to know U=RI. Not google it. Not look it up. I also want them to be able to transform it to U/R=I.