There are many reasons why colleges charge application fees. Some of them are more obvious than others but it's important to realize that they aren't just charging the fee to make a profit or to exploit you. Colleges need to pay for the expense of choosing new students somehow, and an application fee is a simple way to defer some of the costs involved. There are other reasons, which we'll go over below:
Because They Can - The bigger universities can charge higher application fees because of their clout. There will be students that want to go to that school so bad that they won't mind paying the fee to be considered. Other schools enjoy the same privilege. Basically, it's a closed system. If you want in you have to apply. If you want to apply you have to pay the fee. If you don't want to pay the fee, don't apply. Maybe as less and less people choose to go to college you'll see them lower or even waive their fee to attract those students on the fence.
Cover Costs - The admissions department has to be staffed by people who are able to determine if you're a good fit or not. They have to read through the hundreds and thousands of applications and decide which ones are just no good and which ones show some promise. They then have to whittle down the good pile into those that are going to get an acceptance letter, and those that are going to get wait-listed.
Weed Out Tire Kickers - If the application process were free there would be many, many more applications at every school in the country. Colleges would be inundated with applications to the point that it would be too costly to run an admissions program. There would be far too many resources and employees needed to process the influx of applications received every day. If there weren't a fee anyone could apply to any school and be accepted at dozens of schools only to pick one.
So there are the basic reasons why colleges have application fees. The short answer is because if they didn't it just wouldn't work. The larger universities charge more because they receive more applications, and therefore it costs them more to sift through everything and find the students they want to attend their school If you're worried about spending too much just to apply at university, narrow your list down to your top three schools and just pay the fees at those. If you don't get into any of them, go to your fourth school and just pay the fees one at a time until you get accepted. Best of luck!