1) It used to be a PADI rule that the instructor had to keep copies of the Knowledge Reviews, in the student's record file, as proof that the classroom sections of the course had been completed to the required standards. PADI do not require that to be done now.
2) It used to be a 'rule' that PADI prevented instructors from photocopying the Knowledge Review pages from the manual, on grounds of copyright. This also helped to ensure that students could not 'share manuals' (PADI state that every student must have their own copy of the manual for the course and later review). Whilst it is legally correct that the manual should not be photocopied, there is nothing wrong with the student writing their answers onto a separate piece of blank paper.
3) The storage of the knowledge reviews serves a legal purpose, as it provides evidence that the student has certain knowledge and training. This could prove important should the student later have a scuba accident and then claim that they were not taught properly. Many instructors prefer to keep this system going, for that reason.
4) PADI instructors used to have to do save and file the knowledge reviews. This made it very normal that the pages were torn out of the manual. However, the rules changed in recent years, and this is not longer necessary by PADI standards. Now it is not 'normal' for them to do this. However, many still do for legal protection reasons.
I hope that clears it up.