So far, it makes sense to me why you would put objects in a hierarchy in relation to other, where objects "down the hierarchy" inherit the transformations of the object above it. So like a sword, in addition to its own transformations, inherits the transformations of the person holding it, which in turn inherits the transformation of the horse it's on.
This technique is explained in depth here:
Where does the idea of a "scene graph" come into play? I tried reading the wikipedia article: http://en.wikipedia.org/wiki/Scene_graph
But it does not really make sense to me why they use a graph or tree to model an entire scene. What I would do is just keep all the objects in a list and render them in order (maybe after some frustum culling), using the "hierarchy" technique as needed. Why do we need a tree or graph model?