Why do caterpillars need to moult?

Answer 1

It's a normal process for insects to moult their exoskeleton to grow. In a caterpillar, after moulting it turns into a butterfly just like how after moulting a nymph will turn into a dragonfly.

Answer 2

In the case of caterpillars, it's not exactly moulting. The caterpillar is one stage in the life of a moth or butterfly. It is the stage that does all of the eating for the organism. It gets big and fat on leaves or whatever it eats and then forms a cocoon and its entire self morphs into it's adult stage before it emerges from the outer shell of the cocoon.