They expose kids to new vocabulary. For example, in 'The Tortoise and the Hare', words like 'perseverance', 'overconfident' can be learned. Kids also get to understand sentence structures better as they follow the flow of the story.
Well, these short stories are often full of common phrases and expressions. In 'The Three Little Pigs', phrases like 'build a house' are used. By repeatedly hearing and reading these, kids internalize them and can use them in their own communication. Moreover, the context of the stories makes it easier for kids to remember the words and grammar, rather than just learning them in isolation.