The greatest of warriors go directly to Valhalla - they earned it. The leftover "greatest" warriors, Odin sends to Valheim. Why?

- It's a last chance for unlucky/dumb warriors to prove they deserve a place in Valhalla. If you were ready for Valhalla, Odin wouldn't vanish every time you got close to him.

- Valheim is used like a Viking purgatory. Berserkers are sent there to deal with their anger issues. Their rage can be vented productively (to smite Odin's foes) until they've calmed down enough that they'd rather be feasting in Valhalla than starting fights there.

- Odin is mocking his foes. "One of my finest warriors took your head? No, they're all still in the middle of a drinking contest... Looks like you just got slain by Ulgarth the Incompetent!"