Try asking an LLM a question like "H o w T o P r o g r a m I n R u s t ?" - each letter, separated by spaces, will be its own token, and the model will understand just fine. The issue is that computational cost scales quadratically with the number of tokens, so processing "h e l l o" is much more expensive than "hello". "hello" has meaning, "h" has no meaning by itself. The model has to waste a lot of computation forming words from the letters.

Our brains also process text entire words at a time, not letter-by-letter. The difference is that our brains are much more flexible than a tokenizer, and we can easily switch to letter-by-letter reading when needed, such as when we encounter an unfamiliar word.