Painting the inside of the block helps seal the surfaces and trap grit that survived the cleaning process. It also aids in the final cleaning, where small metal flakes and gasket debris can be easily seen and picked up. It also may help the oil return to the pan more quickly. However, it's a lot of work and not worth the effort in my opinion. There's also the risk of the paint chipping off and the clogging oil pickup or filter.
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