Why does Microsoft suggest using WSPs for production deployment in SharePoint? What are the other methods for production deployment?
WSPs are suggested as they are deployable 'bundles' of functionality, whether that is an Event Handler, Application page or Web Part. By using WSPs you can create and test them in Dev and then roll them out to production once they have been tested. A WSP can be easily managed from the Solution store in Central Administration
It is possible to deploy features by putting the necessary files into the 12 Hive (SharePoint ambiguously named folder), but this requires manual changes to the system. If you have several Web Front Ends (WFEs) in a web farm, then you would need to manually maintain each of them. When using WSPs for deployment, the updates can be deployed to all Servers from one location.
The wsp was specifically designed for the purpose of packaging and deploying SharePoint 2007 solutions. That's why Microsft suggests using it!
While there are a few limitations to it, it's by far the best way to deploy solutions into a prod environment.
WSP files are designed for deploying functionality to SharePoint in a consistent manner. Although technically they don't do anything you can't do by just copying files to the server, relying on manual deployment is a great way to put the system into an inconsistent state. It may work at first, and even be quicker/easier in some cases, but sooner or later you will permanently break your production environment.