Why should you care ?

I often find squalor to cause the most unhappiness in any settlement (mostly cities) and one of the major cause of unrest.... So I think you should care if you don(t want your cities pop to turn to rioting..

Squalor is the result of the lack of sanitation in your cities/castles, so the more population, the greater risk of squalor...

The main effect of squalor is reducing population happiness, making cities harder to control...It is also one of the reason the plague might affect one settlement (other than the Black Plague which is scripted and happens no matter what)...In fact, getting the plague in a settlement is sometimes a good solution to getting rid of squalor if it kills a sufficient number of inhabitants

To fight it, there are two options : reducing the level of ppopulation (or at least the level of pop growth by raising taxes for example) or constructing health buildings.