Install Pandoc if you haven’t already, and after doing so reload Compile and check the file type dropdown for a Pandoc to ePub conversion choice. With that you can then convert it to Mobi using KindleGen on the command-line, or with Amazon’s Kindle Previewer.
Or you can use Scrivener’s Kindle generator. Just make sure to go into the general options tab in the compile overview screen (gear tab) and check the option to convert MultiMarkdown to rich text.
I wouldn’t say either is clearly better than the other, it’ll mostly come down to taste. Both will probably require some learning and adjustment to use.
As to why you might want to compile to MultiMarkdown itself—it’s a useful option if you intend to apply addition post-processing to the file (and in fact in the compile Format designer you can even do that post-processing right in the compile settings). So while with the MMD->HTML or what have you choices you are stuck with whatever command-line options and such we hard-coded in, with this option you have full control, can even pass the file through your own wrapper script to make further adjustments, etc. You could even automate the KindleGen part so that in fact the result of compiling goes straight to .mobi, despite sticking with a pure MMD/Pandoc workflow with no conversions (well, save for the ePub->Mobi conversion).
If you mean why are there the additional MMD->X options, well those are for your convenience. If you’ve written what amounts to an MMD document in Scrivener, instead of ending up with a plain text file and doing further conversion yourself, you can have Scrivener handle it for you and get an .html, .docx, .odt or whatever type of file you need in one click.
AmberV, Thank you so much for this very detailed answer!
After reading your answer, playing around with Pandoc, and reading the Scrivener Manual on Markdown I have realized that I didn’t quite understand what I was after. I am going to create new discussion comment better posing my initial question.