A nominee is essentially a trustee for receiving the asset — the bank, insurer, or fund house pays out to whoever is named as nominee, since that's who they're legally required to hand the asset to. But the nominee doesn't automatically become the legal owner; they're expected to distribute it according to the deceased's will, or according to succession law if there's no will, to the actual legal heirs.
In practice, this means a nominee could be legally obligated to share the asset with other family members, even though they were the one who received the payout directly — which surprises people who assumed 'nominee' meant 'sole beneficiary,' the same way it might work informally within a family that never discusses this distinction explicitly.
Because of this, nomination and a will serve different, complementary purposes — nomination smooths the process of who receives the asset first, while a will (or succession law in its absence) determines who's actually entitled to it. Having both, and keeping nominee details updated after major life events like marriage or a child's birth, avoids a lot of potential confusion for your family later.