Here's a pretty reasonable response I found on the Bioware forum:
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"The idea behind direct connect was to give you a way to run a server without having to connect via gamespy. Say, heaven forbid, that gamespy decides to drop support for NWN persistent worlds... no more server lists... well, with direct connect, no worries. You just need to know the ip address of the specific server you wish to connect with.
As to lag... it does save a small amount. But, only if that server is NOT listed on gamespy. IE, if the server owner sets the ini settings to not involve gamespy.
The savings would be from NOT having to constantly update the records on gamespy, and so you would save a few packets of data being sent to them, and save the time waiting on gamespy responses.
Marginal savings at best. Typically, if a PW is having lag issues, it is due to having OTHER problems. Areas too large, too many placeables, non-compiled mdls, hi res graphics, not enough ram on the server, too many players logged in etc... all the above in a non-specific order can affect lag. There are probably many other things that would also affect lag."
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This all makes sense to me. It wouldn't help server overhead much, as RL does broadcast to Gamespy (so new players can find it) but it could help a client keep their ping down a bit. Not that lag has been much of a problem here since the server upgrade, but it was something I was curious about since I had read it.