Aside from space, why use a rack mountable server over a tower server?
Or is space the only reason...
Tower servers are cheaper, more space for cooling, and more expandable... Why rack mount?
When you rack mount the servers you end up creating what are called hot and cold isles. The hot isle is the where all the servers vent their hot air into, and the cold isles are where you pump the chilled air from the AC into. In a server room it isn't about how many fans you can put inside the machine, it is about how much cold air can you get to the machine. Rack mount servers are configured to allow for the maximum amount of cold air to move through the machine as quickly as possible.
Rack mounted servers also make it much easier to get into the machines as you just slide the machine out on the rails do what ever needs to be done, then slide it back into place. When done correctly there is no need to unplug a single cable when doing this.
You mentioned space, but I'll talk a little about that. When towers they come in all shapes and sizes. If you start putting towers in a rack, you can probably fit 3-6 machines in a rack, depending on tall they all, and if you can put two on a shelf and have them fit. With rack mounted servers you can easily get 42 machines in a rack (assuming 1U servers and a 42U rack). That is a much more efficient use of space, and space costs money.
Beyond space, there are at least a couple of reason why rack mount servers are desirable. First, it is easier to implement air circulation and cooling systems when you can control the airflow by closing the gaps between machines. This would not be easy to do with non-standardized case sizes. Second, some might find it helpful to be able to physically secure a group of machines via a locking rack.
There's probably more, but space would be the primary.
Space is the only reason, really - if you have a lot of servers, then the storage space it takes to keep them rapidly gets more expensive than anything else.
Space in a datacenter is extremely expensive, much more so than the servers, relatively spoken.