What is a LAN ?

LAN is a single broadcast domain, including all devices in that broadcast domain.

A broadcast domain is the group of devices which will receive a broadcast frame (destination MAC FFFF.FFFF.FFFF) sent by any one of the members.

Performance

In a network, lots of unnecessary broadcast traffic can reduce network performance.

Security

Even within the same office, you want to limit who has access to what. You can apply security policies on a router/firewall.

Because this is one LAN, PCs can reach each other directly, without traffic passing through the router.

So, even if you configure security policies, they won't have any effect.

Subnetting

Separating with subnetting (at Layer 3) isn't a solution, because devices will still be within the same broadcast domain (at Layer 2).

VLAN

Switches do not perform inter-VLAN routing. It must send the traffic through the router.

Are configured on switches on a per-interface basis.

Logically separate end hosts at Layer 2.

Switches do not forward traffic directly between hosts in different VLANs.