There are plenty of reasons for creating an altcoin to test a concept, but there are also good reasons to improve the primary protocol. Considering that cryptocurrencies are a strange meld between financial instrument and software, the scale tips more towards improvement than replacement. Bitcoin maximalists have plenty of reasons why altcoins shouldn't exist.
Please be aware that I have had no involvement in creating Monero (or knowledge of the rationale behind it), so the following should be regarded as speculation.
On a general note: there is no reason that there should be only one cryptocoin, on the contrary there are use cases for different coins. Bitcoin might not be particularly useful for e.g. the banking infrastructure, where Ripple might be. Ethereum focuses on smart contracts and other coins might try to address the initial distribution or may only exist to get some infrastructure built. Many different technologies and goals and there will be a lasting need for at least some "altcoins".
Monero offers improved anonymity/fungibility (among other differences) with respect to Bitcoin. There might be good reasons to have a separate coin rather than to try and push this technology to Bitcoin:
- It may not even be seen as an improvement to Bitcoin. Who says that Bitcoin's limited anonymity may not prove to be an asset as it could allow for monitoring. Some people like it that way.
- Creating Monero allows for a testing ground for new technology. As it matures and the wrinkles get ironed out, the technology will be more suitable for adaption by other coins. Why risk breaking Bitcoin?
- Bitcoin does not seem to be very conductive to change. Changing into Monero tech would be a massive change (if at all possible) and it is very unlikely that the community would want it.
- Other perceived shortcomings of Bitcoin are fixed along the way as well. Such as dynamic block size, no inflation and the substantial pre-mine.
- It allows to build a separate and more healthy community around the new coin. Something that I think has worked out pretty well with Monero.
I am sure that others can expand on my answer. I have really tried to be light on technology, partly because of my limited knowledge, but it might also serve non-savvy readers better.
In conclusion: a different coin or technology is not necessarily hostile towards the Bitcoin project, although it may be perceived as such by a part of the community. It may expand cryptocoins into other domains or even serve to improve the Bitcoin project itself. There is still nothing stopping Bitcoin from adopting improved technologies and ideas.
Bitcoin has grown large enough that it is increasingly difficult to make significant changes to the protocol. There are too many competing agendas, each one backing a lot of money. The ongoing discussion regarding the block size is a perfect example of such a topic that polarizes the community and inhibits progress.
Monero is the only coin (besides its little brother aeon) to perform anonymity on the protocol level. Integrating such technology on bitcoin's protocol level would akin to updating my Sega Genesis to play Xbox One games. It's theoretically possible but much more efficient to start with fresh technology.
Monero is based on a different protocol than bitcoin (cryptonote, see: https://cryptonote.org/whitepaper.pdf). Bitcoin works with a public ledger (transaction history of all the coins is clear for everyone to see) and implementing privacy on top of that is very hard. Also, one would always be confronted with the fact that to 'make coins private', said coins would have to be 'anonymized', one could already consider this as being a breach of privacy (one can tell that you wanted to anonymize coins, that in itself already says something). So the monero developers couldn't really 'improve' bitcoin, they would never reach the same levels of anonymity. Also, as can be seen from the blocksize-debate, it seems to be very difficult to implement change in bitcoin (it seems to be heavily 'politicized'), bitcoin seems to be more 'corporate' nowadays...
So it seems that 'improving' bitcoin would never generate the same results as starting from scratch with a new protocol and thus a new coin. This does mean that for endusers (exchanges, markets, consumers) implementing monero is harder than implementing another bitcoin-clone...