Waterproofing your walls and floors will protect them from overspray or moisture in the air, which can cause structural warping, decay, peeling paint and mildew.
In the case of tiling, it is important to complete waterproofing before tiles are laid as this will guarantee the water-tightness of the grout. Each wall has a minimum standard height that waterproofing must be applied to, but for complete peace of mind you may choose to have each wall done floor-to-ceiling.
Waterproofing board also has the added benefit of acting similarly to insulation. It will keep any external walls slightly warmer, which will keep energy costs low and mean you're more likely to enjoy your bathroom on a cold winter morning.