Theocracies do not necessarily serve the interests of their people. They may do so, but that will not always happen. If theocracies serve the interests of their people, they typically do so by enforcing the religious preferences of the majority of the people. If the majority of the people want their religious beliefs to be enforced on all of the people of their society, their interests will be served by a theocracy. However, there is nothing about a theocracy that says that it will always serve the best interests of its people.
A theocracy typically interacts with its people in a fairly authoritarian way. It gets involved in many different aspects of their lives. This is necessarily true because a theocracy wants to ensure that its people live in the way that their god (or gods) desires. In order to do this, the theocracy has to intrude on its people’s lives. It has to do things like prescribing what sorts of clothing they can wear and what sorts of entertainment they can pursue. It typically has to tell its people what sorts of sexual relationships they can engage in. In short, it has to try to control its people’s behaviors as much as possible.