In Book 8 of the Odyssey, what does the blind poet Demodocus' presence and his singing do for the story?
The blind bard is very important to Homer's tale for several reasons. First, many researchers and readers alike believe the bard is supposed to represent Homer himself and his role in the society of the times. It is believed he was a blind bard, making a living by singing of the trials and tribulations of the upper class citizens.
To Book 8 however, he is important because of Odysseus' response to his song. Note Odysseus offers food and drink to the bard and is moved to tears by his songs of the Trojan War and of Odysseus' journey. Remember a King or person of Odysseus' status would not normally offer food or thanks to a bard. This emotional display on the part of Odysseus is what allows Alcinous to prod him for revelation of his identity, which in itself is a large reocurring theme in The Odyssey. So, the bard is a catalyst for major events in the book.
The poet's presence does several things. It gives Homer a chance to remind listeners to his poem of the backstory--the history that had gone before, which was included in his Iliad. By putting a blind bard in, he may be commenting on himself, and even giving listeners a chance to reflect on his quality by comparing it to the summary given here. (It also functions as a kind of advertising, if that isn't too crude.) Finally, it humanizes Odysseus. He cries when he hears this, making him much deeper emotionally than the pure hero he had been.