The frame story serves to highlight the contrast between Frankenstein, the mad scientist, and normal, decent society, as represented by Robert Walton. Though Walton has much in common with Frankenstein, as we shall see, there's no way in a million years he would ever entertain the kind of deranged fantasies in which Victor has indulged. In that sense, Walton acts as a foil to Victor, and the use of a frame story is an especially effective means of bringing out the personal characteristics that set him apart from the crazed scientist.
The employment of a frame story also serves to make Victor's actions and their disastrous consequences seem more real, less fantastical than they otherwise would be were they to be related in a more conventional narrative structure.
The main connection between Victor and Walton is that they are both quite lonely souls, isolated from society by their singular personalities and their single-minded pursuit of scientific truth. That is why they instantly connect with each other, despite certain radical differences in character and temperament that might otherwise have kept them apart.
Although Walton himself would never have entertained the notion of creating some kind of monster, he can at least sympathize with Victor's goal of pushing back the frontiers of science. He too, in his own voyage to the frozen north, wishes to do precisely the same thing, albeit in a much more conventional manner.
Frankenstein has a complex narrative structure. There are actually three "frames"—the story of Walton and his expedition to the Arctic, the story of Frankenstein himself, and the story the monster tells Frankenstein of his life after his creation. Add to this that the entire story is told through a series of letters Walton writes to his sister, and that there are several times in the novel where Walton's letters (and Frankenstein's and the monster's stories) quote the words of other characters, and you get a sense for how layered Shelley's story really is. Generally speaking, early novels took on the epistolary form in an attempt to make them more "real"—the idea was, if the reader was presented with an incredibly thick packet of letters rather than a "novel" per se, the text would seem less like "fiction." So, odd as it may seem, one motive for Shelley's constructing the novel as she does is to make it more "realistic."
For modern readers, the frame is fascinating for another reason—it dramatically problematizes point of view. Since the story is told entirely through Walton's words, the narrative structure calls into question the "truth" of Frankenstein's story (Walton could have made it up). Even assuming (as I think we must) that Walton faithfully transcribes Frankenstein's story, as readers we never have any firsthand knowledge of Frankenstein, much less the monster. The way the novel is presented to us precludes any certainty about what really happened; this uncertainty about the production of the text mirrors the uncertainty Frankenstein feels about the production of his "text," the...
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monster, and it mirrors the ultimate unavailability (to Frankenstein and to the reader) of the monster's experience. So, there is a sense in which the framing structure of the book serves to amplify one of Shelley's basic themes, which is the problem of "otherness," or of understanding the interiority of other people.
I think you could also consider how this makes the entire impossible story a bit more plausible. Walton and Victor are both explorers, pushing the bounds of knowledge and science into places where it might best not go, and becoming isolated from those that love them. Walton's letters, and interesting device in themselves, present something that we believe could be "real." If we buy into the reality of Walton, it becomes a little easier to buy into the strange story of Victor. And if we can buy into Victor's strange tale, when we arrive at the onion's core, the Creature's story, we might just be a little more likely to buy into it. And then we exit the core through the Victor layer and back out to Walton level and "reality." It's and interesting device and I think it works well!
Shelley develops Frankenstein through the frame structure (a story within a story) to allow the reader to get several characters' perspectives. By the end of the novel, three characters (Walton, Victor, and the Monster) have had a part in the narration. Perhaps Shelley thought that it would be too confusing to the reader to keep switching narrators outright.
The frame structure also works well because Shelley builds suspense from the beginning. By being able to view Victor first after his pursuit of the Monster, the reader wants to know what has made Victor so sick, why he was pursuing a creature, and what brought him to such a remote location. By using Walton as the overall narrator to whom the story is told, Shelley can easily begin with the suspenseful "present" and flash back to the causes of Victor's condition.
Victor Frankenstein and Walton are mirror characters. Walton longs so badly for knowledge and recognition for his scientific experiments/discoveries, but Victor knows the danger of an obsession with science and knowledge. He has one last opportunity to dissuade Walton from becoming like him. If he can save another from enduring what he has had to endure, then perhaps not all that he has lost will be in vain.