Personal observation allows you to confirm for yourself the reports you are getting about the competence of employees and the efficiency of particular activities. Maintaining a presence on the ground also helps you to convey the message to workers that you take a personal interest in what goes on, and aren't simply making decisions from a remote location.
If you regularly walk around the workplace, or even work side-by-side with the employees you are responsible for, they are far more likely to come to you with their concerns or suggestions for improvements.
But keep in mind that some workers tend to behave differently when 'the boss' is around, so you need to be careful not to let them give you a false impression while you're there.