Signifigance

First and foremeost, it serves as the birth place of the lead character, Squall Leonhart. Had there been no Winhill, Raine may never have met Laguna, and there would have been no Squall. Squall is what makes the storyline of Final Fantasy VIII unique. If he did not exist, it would just be another tale about a bunch of people who want to save the world. Thus, Winhill makes the game interesting.

Winhill is also the place where Ellone was born and where she stayed, protected by her "uncle laguna", for much of her early childhood. Eventually, she ended up in the orphanage that Squall was in, where she became a very important part of his life. One sad day, Ellone was forced to leave without an explanation to him, and thus became the cause of his great emotional turmoil in the years to come. The game is as much about Squall's emotional development as it is about saving the world. Without Ellone in his life, he probably would have been a much more emotionally secure, and there would have been less room for development. Thus, without Winhill, Ellone would not have existed or been able to meet Squall, and the game would, once again, have been far less interesting.

There is an entire backstory which takes place in the town of Winhill, that of Squall's parents: Raine and Laguna Loire. Read the love story here.