Why does pardot archive prospects

How do you mean Catherine? When are your prospects archived? and do you mean placed in bin?

Having old prospects haging about with no activity doesnt bring any value, not only that you can potentially have a detrimental effect targeting people have no interest and or wasting resources. You have as well a certain limit of prospects so deleting is a good idea to keep it clean. If the prospect becomes active again it reinstates, so no loss there.