Earlier quoted context omitted.
I was asked by a hip, happening, popular web-app related startup to rate myself in C++. I pointed out that Bjarne Stroustrup rated himself 7 out of 10 once. I wasn't as good as him, and I wasn't nearly as good as him, which left me the field of 5 and below. I can guarantee that some ham-fisted chancer who'd flicked through the "Teach Yourself C++" chapter summaries put himself down as an 8, though.
Agreed - the answer to this question is really the result of how much one thinks one knows. Because a little knowledge can result in false confidence, those that rate highly will fall into two categories: Those that actually know, and those that don't. If the interviewer can distinguish between these two categories, then what value does the question add? If the interviewer cannot and is relying on the answer to this…
I like to interview people across a range of subjects (as I have not had the chance to hire a pure specialist). So knowing what they feel confident in answering will help me tailor the questions to what their perceived strengths are.
So I think it gives me a feel of your confidence level in a language. If you flipped through a "Teach yourself C++ in 24 hours" book once, then rate yourself a 10 on a scale from one to 10. Then not answering basic C++ questions will raise red flags.
If they answer a "1" on something. (And I re-assure them that answering 1 is perfectly ok). Then I can feel a lot more comfortable giving them more hints, or a lot more supporting detail in a question that they have indicated they are not very strong in.