Generally speaking, the competitiveness for research money is a way to "ensure" that there is scrutiny of projects so that well founded studies get funded and less so may not. Like all systems there are flaws but the general principle is to extract the best proposals as seen by peers).
The funding for researchers through their departments varies substantially between systems and even between universities within any system. Some departments may fund PhD students, some may rely on external funding. Researchers need to go to conferences and publish papers (which may involve costs) so even if you only need paper and a pencil for the research itself, there are other activities that must be covered and the examples I gave are probably not covered by department finances. For most experimental research, costs for equipment, labs or field visits can be substantial.
In my system, partly due to credit crunch and a general interest in cutting costs everywhere, more and more must be covered, even office costs for performing the research and office costs for PhD students.