Why would a VPN be a good browser extension?

Convenience. I also don't mind it in the browser as it would not really add much complexity. Some lines of code at most? VPN's do not require complex client logic - they require actual servers that reroute the user traffic - that is the expensive part.

And for many non technical users that is very useful, if they can get that with a click. To get geoblocked content, etc.

Mozilla has done way worse things, much more distracting from their core mission - building a browser that people want to use and trust.

Why does the VPN need to be integrated into the browser itself?

I don't think it should. You think it should be a browser extension. I don't think it should either be integrated or a browser extension.

I think we can interpret "browser extension" as a catch-all for "not directly built into the browser", in whatever form that takes.

Quite frankly I don't think it should be either. I'm sick of browsers trying to sidestep my operating system's networking stack (be it forcing their own DNS implementations for 'security' or now this BS).

There are other usecases that don't affect you which are very handy for others, such as testing site access from different countries with per-tab geo settings from a VPN extension.

The core new functionality here seems to be MASQUE proxy support, which is genuinely useful and probably not possible to provide in a plugin.

Of course the UI itself could be extracted into a plugin, but I'm not really a fan of the pattern of shipping a large feature and extract only the thin UI layer into a plugin. It felt very weird when Mozilla tried it with "multi-user containers".