It's a little of everything.
If I'm throwing my resume out there, being a software engineer 1 vs. 2 shows a clear advancement path. Being stuck at 1 for a few years probably makes someone go "why hasn't he been promoted?"
On the money aspect, there's a fairly decent bump here in pay. I've received my annual shitty raise (4%) and that's it. Obviously I've grown as a developer, in both skill and responsibilities, yet my pay and my title don't reflect that. Maybe if I were further in my career and settled in it wouldn't matter as much, but to someone trying to advance their career efficiently it bothers me.
And as to why I haven't been promoted, I got literally and figuratively fucked here. I originally started in System Engineering as a Software Engineer 1. I worked there for a year, was poised for advancement, and my position literally was shitcanned. Thankfully BIOS picked me up, where I've been for another year now. So I got a shitty roll of the dice there. I guess some of my resentment stems from that.
Sorry for the longwinded explanation. I'm not a title whore, but I would like my skill level to be reflected in some way.