It gives someone close to the family, but not really part of the family, a formal position. Rather in the same way that many French Families have 'petite cousin' which seems to refer to a very tenuous relationship but which gives that person 'family' privileges.
That doesn't really answer your question but may point a way to the answer.
There is/was the custom of calling sons after father and daughters after mother 0r favourite aunt or uncle Addressing the individual by their prefix sorts out the aunts and uncles from nieces nephews and cousins.
Where the child addressed the next door neighbour as 'Uncle' George- fair enough I guess for tots Recently the daughter joined in a conversation with her mother - George and my self and addressed him as 'Uncle George' Said daughter is now in her forties- very strange
Conversely- whilst my children addressed me as 'Dad' My wife insisted she be called be her first name and not 'mum' which among strange company caused a raised eyebrow or two- both daughters are now in their fifties - so it was a very strange thing to hear all those years ago
Cousin Margaret was the daughter of Auntie Margaret.
Cousin Winifred was the only Winifred in either family, but she was the one time principal of Cheltenham Ladies College and in those times it would not have been perhaps proper for young six or seven year olds to be calling such an august personage by her Christian name, no matter how justifiable!