I went with Series X myself, as I intend for my next TV to be a giant 4k at 120hz (my current is a 50 inch 4k 60hz). I will also get a Ps5 in a year or two after exclusives are out.
I can totally see the use case for Series S though. Let's say you have a 1080p TV that you are happy with and don't intend to replace for a few years, or that you have a 4KTV and are fine playing upscaled 1440p (on smaller TVs, it honestly still looks great to most people). If money is an issue, then that $300 Series S can make a lot of sense, especially if you do all access and pay $25 a month for it paired with Gamepass. Sure the SSD is smaller, but lots of people play 1-2 games at a time and then delete them and download the next. If that is you, then the 400gb or so of usable space is plenty. You could even have your CoD and 1-2 sports games on it always, then 1-2 singleplayer games at a time.
My layperson's understanding of the Series S (and correct me if I am wrong) is that outside of the disc drive and SSD space, it can do everything a Series X can do in terms of performance, except it does those things at 1080p (1440p?) instead of 4k. Maybe in some games you'll have to be fine with 30fps instead of 60fps (and a lot of people are).
Another great use case is for people who already have a Ps5 as their primary console and want the Xbox Series just for gamepass. In that case, the $300 box also makes sense. If money is no object, sure you could just buy the Series X, but the point of Series S is for people for whom money certainly is an object.
I'm fine with the Series S existing. It brings the quality of life benefits of Series X while letting a lot more people into next-gen gaming at a lower price. Nothing wrong with that. In fact, if it had a disc drive I may have been tempted to save the $200, but I am an old fashioned gamer who likes discs for games I buy.