I think 99% of the people who buy these badges are looking to bolster their ego and look cool in front of strangers.
That being said, I think SniperStraz's argument has merit. Let's face the hard facts. In a perfect world, we wouldn't need CCW licenses at all, and no one would care if anyone else had a gun. And in a little less perfect world, people who see other law-abiding citizens with guns would at least not freak out, and just go about their business.
But we don't live in either of those worlds. We live in a world where the vast majority of people think the only ones who should have guns are police and military. And that anyone else who has one, is probably a criminal just waiting to strike. If having a small piece of metal next to your carry weapon can stave off undue hassle and aggression, than I don't see the harm.
I do see harm in actively passing yourself off as a police officer. If you purposelessly flash the badge, let it show, wear it someplace openly visible, or in any other way impersonate an officer, you're a moron. And I think that most people who buy these badges sadly have these ideas in mind. But I think the general concept behind them is not inherently wrong. I really wish I could open carry, or at least not worry about my concealed weapon showing. I wish I could wear an open button up shirt, or just a t shirt with my weapon. I wish I did not have to pick out my clothing specifically to hide my weapon. I wish I did not have to worry about printing or showing my weapon by accident. I wish I did not have to worry about the police being called on me if some soccer mom sees my legally concealed weapon and thinks "CRIMINAL" while frantically dialing 911 on her cell phone. So I say again, if some small piece of metal right next to my holster placates these people and lets me go about my business un-hassled, than I really don't see the harm. BUT if one carrying one of these badges does anything beyond or more conspicuous than just having it next to their weapon, than I DO see the harm. And like I said, most people who buy these badges do indeed have conspicuous intentions.
So while it's a good theory, and it would be a good practice if there were a lot less tacticool wannabes out there, there are unfortunately too many of these tools out there for it to be a good idea for the rest of us.