Gosh, there are so many wonderful musicals, it's hard to choose. I tend to re-watch West Side Story, Seven Brides for Seven Brothers, and Singin' in the Rain a lot, and it seems to be the dancing that draws me to them.
As for the question of why we love musicals, the reasons are probably as varied as the viewers. Musicals provide great escapism from economic, cultural, and personal realities, of course. But I expect there's also a certain spectacle that pulls us in. The dancing often has not only visual beauty but also an athleticism that, like the Olympics, transfixes us with awe. (I'm thinking, here, of Donald O'Connor in Singin' in the Rain; the athletic brothers in Seven Brides for Seven Brothers, etc.) Couple all that with glorious music and amazing singers, and -- well -- what's not to love?