What's the rationale behind designing the default-on feature this way?

“In the system settings, I can find the ‘Open file by default’ option. However, why does it have to open a specific file instead of the repository selection page? I don’t want to open a designated file every time, as my work involves multiple files across different repositories. I would prefer to open the repository selection page so I can choose the specific repository I need. I know this adds an extra step, but it is still much simpler than having to switch repositories manually.”

“I’m hoping for some improvements to this feature, or maybe there’s a third-party plugin that could help. Looking forward to your replies!”

I think you’re talking about what Obsidian calls the Vault Manager.

An option is use the URI that leads directly to the Vault Manager: obsidian://choose-vault. You can set that as the shortcut you use to open Obsidian.

About: Obsidian URI - Open Vault Manager - Obsidian Help.

Think of the Default file to open setting as the file you want to open when/after you choose a vault.

Another workaround:

The “open file by default” setting is a setting for the vault, not for the app.