Purpose
Zion was initially built for the purpose of saving the last of the human race following the war against the armies of Zero One. However, a Machine program named the Architect, the creator and manipulator of the Matrix, manipulated the situation so Zion served as a control for the survival of the program in two ways. Firstly, the Machines could allow any humans who did not, or could not, accept the Matrix for what it was to live in the physical world without having to recapture them (this reduced dissent within the Matrix's population and prevented an exponentially-growing rejection rate from its population from causing entire "crops" of humans to die out, reducing power output). Essentially, Zion was allowed to exist by the Machines as a giant pressure-release valve on the entire system, allowing the humans that realized the Matrix wasn't real (statistically, only a fraction of 1% of the whole human population) to be conveniently removed and isolated. Secondly, the Architect would periodically destroy Zion and its inhabitants as part of a deal coercing the One into reinserting the "Prime Program", a program code required to maintain the Matrix, allowing the Matrix to continue and Zion to be rebuilt by chosen survivors without memory of the destruction. The Machines usually timed this to occur when Zion's population grew in size to the point that it was just beginning to pose a significant threat to them, which was roughly when its population reached about 250,000. This cycle was broken when the sixth installment of the One refused to re-enter the program, and instead brokered the truce with the Machines.
Read more about this topic: Zion (The Matrix)
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