Number one is its central location and connection to road and rail. There's a rail station right at the airport and it is astride a major motorway. This makes it pretty convenient to access several cities in the Rhine valley such as Cologne and Bonn, which until recently was the German Federal Republic's capital. Frankfurt am Main isn't actually all that large a city by German standards but it is Germany's finance center (nickname is "Bankfurt").

Yes, Berlin is larger but its postwar political status really didn't make it a hub for air travel. In fact, for the most part airlines like the late Pan Am (and not LH) controlled most of the flights out of Berlin, similiar to how the US, British and French controlled the West Berlin sectors. In time Berlin may see more direct international traffic as Berlin settles into its new role as the restored capital city of Germany, but given 1) FRA's well established status as a hub and 2) need for expansion at Berlin's airports to handle additional traffic it's probably unlikely in the short to medium term that LH and other airlines will switch its hub flights from FRA to Berlin. Plus, MUC has room for expansion.