A better example is that players have incentive to quest for magic items because then they get those magic items- they have unique abilities that either bring them up to the tier that the people they want to be like are at, or nobody else has that magic item and it's a way to both be unique and adds a way to improve and enhance their character's build.
It gives them history to call upon.
Nobody wants to quest for the generic masterwork iron greatsword, but even a crappy magic sword can be much more enticing to the players, and once they get it they may be more inclined to keep it. But a sword that any random smith can forge? Less so. While obviously there are ways to make mundane items interesting, you'll still lose out on some of the wonder and feel-good-ism of getting a magic item, particularly one that can be useful to what you want to do with your character and how you enjoy playing the game.
Killing the dragon and recovering the magic sword of your father can be a really defining character event, both because it's a powerup from where you were, and because it ties in with your character arc. Yes, sure, you might want your father's sword back even if it wasn't magic- but then it doesn't have the reflection in the mechanics to make it special.
As much as people enjoy the RP aspects, people are also here to play the game, and if they wanted to do total freeform roleplay... they wouldn't be here.