What's the deal about this hotel: why is it so famous?

As has been said, it's the hotel's extremely long history.

IMHO, the best thing about Raffles is the museum, which is on the
third floor and is free (just about the only thing at Raffles that
is!) It's enormously nostalgic, and you'll get a real sense of just
how important Raffles has been to Singapore's history since the end of
the 19th century - it makes me yearn to have been able to visit
Singapore in the hotel's glory years of the 1920s and 30s.

Have to agree about the Long Bar - hugely overpriced, but you get free
peanuts (there's a large bowl of them on each table, and the tradition
is that you break them open and throw the shells onto the floor) and
the satay's very good. A Singapore Sling will set you back S$16.

I can also recommend Ah Teng's Bakery as a good place for a sandwich
and a posh cake; despite being part of Raffles, the prices are
surprisingly reasonable.

I have to say, it's worth spending at least one night at Raffles; you
get a tremendous sense of history just walking through the corridors,
and of course you can check out all the areas that aren't open to the
public.

FWIW, there's very little of the original structure left, but the
current design of the hotel (which had fallen into disrepair by the
1980s, but was completely restored in 1990-91) is based, as closely as
possible, on what it looked like in 1915.

Gareth