Why can I create Users with the same UID?

There are actually valid reasons for this. For instance, I used to work in a lab where we each had our own computer but our $HOME was in a shared drive exported by a server. So, my $HOME was

/users/terdon

Since the /users folder was actually not on my local machine but exported over NFS, for any analysis that was heavy on I/O, I would use data stored on my local hard drives so as not to burden the lab's network. To that end I, and everybody else, had two users: one that was system-wide and one that was local to the machine in question. The local user's home was

/home/localuser

However, I needed to have full access to my files whether I was logged in as terdon or as localuser and the way our sysadmin had implemented that was by giving both localuser and terdon the same UID. That way, I could freely manipulate my local files irrespective of which user I was currently logged in as.

The answer here is that Linux does not protect you from yourself.

If you really want to su root and go into the /etc files and give all the users the same UID, you can. It's just a text file.

But you really shouldn't and it will have unintended consequences.

Two users can have the same UID because it is just a number in a text file so you can set it to anything you want, including a value that is already used. As you have seen though, doing so is not a good idea.