Paladins, druids and shamans are hybrid classes, they do many different jobs. In exchange for having tons of armor AND being able to heal other players AND having abilities which build extra threat AND having a bunch of buffs which help everyone in the party, paladins aren't able to deal as much damage as rogues, heal as many HP as priests or hold on to a monster's attention quite as well warriors.
All the same, paladins can fulfill the tank or the healer role in any party and their blessings are always welcome. They are very hard to kill when soloing due to their high armor and healing magic. In the parts of the game which contain undead, paladins can drop extra hurt (and who doesn't enjoy that?).