I didn't donate cos my mother is strict and won't let me do those sorts of things.
I got my Supporter title as a gift for my birthday when Toujours won it as a competition prize during PCX and after she found out my birthday was after the event finished she gave her Supporter prize to me. I ended up being a Tier 4 for 3 weeks and then a gift donation from PEDRO12 took me to Tier 5.
For where the donations go I think it's to help maintain the site, deal with vBulletin license costs, upgrades and more.
The tier system is probably to give better rewards to those who donate more.