God made us as perfect people, but then we decided to give into sin. That set off an unbreakable chain of people sinning. Humans were slaves to sin. In the OT, people had to repent for their sins by sacrificing animals. That was the only way they would be forgiven. Then God sent His Son to be the ultimate sacrifice, to pay for the sins of all who put their trust in him and honestly repent. It wasn't only to show his love; he gave us Jesus because of
His love. He had mercy on us and gave us the Way to avoid Hell. Jesus's sacrifice is a payment for our slavery to sin, so once we accept Him, we are no longer slaves to sin, but slaves to God.
Although I have come to appreciate more certain aspects of the type of substitionary atonement stated above, as an inquirer it did not really seem to acknowledge the seeming arbitrariness of the process. It is a bit overly divine commandish for me, so to speak--God decreed a particular penalty, God's decrees must be fulfilled, so the only way we can overcome serving the penalty established by the decree is if God somehow Himself pays it for us--and He does through Jesus, etc. The difficulty is that it begs the quesiton as to "why this decree," and so on.
I have found ideas developed by St. Maximus the Confessor helpful. In short, the "penalty" of our sin is not siomply death as a decree, but death as a result of breaking the harmony of our being created in us by God. That is, sin disrupts our whole "psychosomatic unity," and thus, we are prone to corruption and decay. This is built into the created order of what we are. So, once sin is out there, the natural consequences begin. From this, I'd say God cannot just arbitarily decide the consequences don't apply, because there is basically a logical necessity between violating our nature by sin, and suffering negative effects---by definition, if one does not live as designed to, then one is malfunctioning, and malfunctioning by definition is manifest by tangible dysfunction (in this case, the maintenance of health and life). So, the key is that God can only reverse this by somehow taking the consequences on Himself, since He alone is powerful enough to endure them without being transformed by them. Once He endures them, if we can participate in His bodily reality (think sacraments, esp. Eucharist), then we take into ourselves the means for overcoming these effects as well.
The question still remains, then, why do we die? (This is still a problem on the pure penalty model as well--if death is decreed punishment for sin, and our sins are paid for by Christ, then why do we still suffer the penalty? The Augustinian approach to this, to the point I understand it, never worked well for me--something along the lines of justice still requires temporal consequences, but the eternal consequences are overcome. It seems that if death is a peanlty and the penalty is paid, we should be saved from all consequences, temporal and eternal). Here Maximus is helpful as well, though I don't have material handy to give reference. Basically, we still must die because Christ died, and in imitating Christ, we must desire to imitate Him in all things, including death. So, we are led to a fascinating "loop"--death is a consequence of sin (vioplating our created nature), and it can only be overcome by God taking on the consequences for us, enduring them, and then uniting this enduring flesh with ours sacramentally. However, in so uniting, we desire imitation of Him, and this requires death! Hence, we no longer die as a "consequence," but for a whole different purpose--imitating Christ. We are "crucified with Christ," as Paul would say. Of course, what we are imitating is death for the sake of others--thus, our deaths too can participate in a sense in Christ's redemptive work--but only through His glorifying us, and inviting us into, this process.
In short, our death ceases to be a penalty/consequence, and becomes part of a redemptive process for the world, though still completely centered in the redemptive work of Christ. He doesn't NEED us for this work, though WE need to part of this process to be fully saved (i.e. Christlike).
To me, this helps explain the necessity of the atonement to me in a way that handles some of the dissatisfaction I use to have with the "simple" substitutionary atonement view. I think the models can ultimately be reconciled (including inb Anselm, who is sort of the standard for substitutionary atonement), but I'll leave that for another time.