Prepared statements offer a measure of protection against what is known as SQL injection attacks. This means that by using prepared statements you are preventing malicious users from inserting values to search for that are actually SQL commands that do harm to the database.
For example, consider a SQL statement like this:
If the String value was something like "a';TRUNCATE table;"
The implementing driver is responsible for handling the conversion and formatting issues of data in queries. Issues like how to handle ' in text values, how to format date values and how to express boolean values are all handled by Prepared Statements.
Prepared statements make this issue go away and handle it in a manner independent of your code. This means the code has better portability which may be an important consideration. A few times unlucky souls have posted existing code that has hard-coded formatting, and a change in the backend database vendor -or even sometimes version- broke the code.
3) Performance Benefits
Due to the way prepared statements are pre-parsed before execution using them usually will result in increased performance. This performance factor will vary wildly for a number of reasons including the type of RDBMS, the driver and the operation being performed.
The two extreme ends are that there may not be any performance improvement whatsoever (or in fact it may be slower to execute one statement vs the other) to being exponentially faster to execute repeating statements because the RDBMS not only parses the SQL but prepares and caches the query plan for execution as well.