There are two rationales for the Rule of Two at different points in the past. When did this retconning happen, and why?
The initial rationale for the Rule of Two is:
- The strength of the Force concentrated in a Force user depends on how many practitioners there are at any given moment. The more of them there are, the more the Force is diluted among them, rendering each individual weaker in the Force on average.
- The Sith therefore maintain the lowest number possible to concentrate as much of the dark side in each Sith Lord as possible without endangering their order's continuity too much. Meanwhile, the Jedi grows in number, weakening the concentration of the light in each individual member as a result.
- As the Sith further their mastery of the dark side, their strength grows further, while the Jedi's budding complacency and arrogance develops, causing their strength to wane further. Eventually, the Sith's power in the dark side will eclipse the Jedi's power in the light, and that will be the moment to strike.
This philosophy was still in place when Episode I came out. When the book Darth Plagueis was published, it described Sidious - at the moment of Plagueis' death by Sidious' hands - feeling a huge shift in the Force as, even for just a moment, the entirety of the dark side is concentrated within just one Sith Lord.
At some point later, though, it had been retconned to the current philosophy that persists into Disney canon. For one, an individual's strength in the Force is no longer dependent on the number of practitioners. The reason Darth Bane adopted the Rule of Two has been changed to such:
- Sith crave power, authority and supremacy by nature. Infighting is inevitable.
- However, when the Sith are many in number, the weak can and will form alliances to overpower the strong - it is their only way to live. This process will repeat, however, until only one standings, and it will not be the strongest.
- The master of each new generation will come from among the weak of the last, and left to persist, the Sith will inevitably doom themselves to extermination.
- The solution is to restrict the order to only two, so that the apprentice can only defeat the master when he/she has indeed become the stronger. That way, the master of each new generation is stronger than the last, and the order will therefore benefit, grow and strengthen from this infighting instead, eventually growing strong enough to destroy the Jedi, who are likewise succumbing to complacency and arrogance.
The benefit of the Rule of Two to maintaining the secrecy of their existence from the Jedi's awareness is the same in both versions.
Edit: Many asked where I found the first. It was many years ago, but I can find the same being mentioned in the Sith's Wookiepedia article:
Learning from the order's past mistakes, Darth Bane established The Rule of Two and restructured the Sith so that there could only exist two members at a time: a master and an apprentice. This would concentrate the Dark Side of the Force into two powerful beings rather than spread it amongst legions of ineffective warriors.