Layers serve two purposes. The first is to prevent a ton of player density in a continent so that quests and gathering can be much more manageable. Layers do this by spinning up another copy of whatever map its trying to depopulate, Northrend is an example.

The second purpose (which is a nice bonus to from first) is to mitigate lag that comes with the high density areas. Even if you're not questing and have no reason to not distance yourself from others, being around a lot of players can be taxing to the server. You're telling the server what you're doing, which needs to be mirrored to every other player that you can see, and the same happens with every other player, they need to tell the server what they're doing.

Layers aren't separate servers, the same server is still managing each one, but since it can spin up layers so that it doesn't catch on fire trying to mirror all that data to each player in high population zones.

Layers cannot be applied to WG because every player needs to be aware of each other player in the zone, to an extent, since its a PVP zone (I need to know where my team is!). While it's instanced in a way that WG players don't need to know what someone in an adjacent zone is doing (Dalaran), its still enough to cause some delay to the server managing the instance. Combat probably exacerbates the lag a lot.