Budd & Oisin:
Fantastic contributions! One of the reasons that I use this exercise as an entry point is that I can help students create good postural alignment in the seiza position. If you are in the proper position, you will instantly notice that you breathe deeper. Connecting breath to posture is an excellent starting point in creating the body connectivity that Budd mentioned. This exercise also allows a person to begin to develop the connection between breath and the entire body through eliminating body movement (other than what happens when you breathe). Proper instruction in anything is necessary to maximize the learning potential and the corrections in posture and breathing is important (as Budd mentioned). The expansion that Oisin mentioned should occur throughout the entire body and it should feel like a pneumatic (pressure) expansion and contraction. People typically "cheat" and try and create the expansion and contraction through muscle tension and release. That is why good hand-on work with a partner can be critical.
The "packing" stuff is definitely higher level stuff. I demonstrate that to my students by using that during the suwari waza, kokyo dosa, oshi exercise. I will have them grab my wrists. I will create the packing without them being aware of it and use a burst release through exhalation and they are knocked over (if I do it properly) or knocked off balance (if I do not do it as well as I should) without any voluntary muscle movement on my part.
I will write back later about the exhalation through the mouth question later. I work privately with some high school wrestlers and the bunch of meat-heads