What benefits are there in giving your followers better [magical] weapons? Should I craft them weapons?
Every time I get a weapon I can't use and it's better than what they currently have I pass it along to them even if it's rare. Does this help that much, how much are they actually helping out?
The higher the dps of the weapon, the more damage the follower will do. Additionally, ability modifiers on the weapons will help them and/or you directly.
Followers contribute 20% of their added Magic Find, Gold Find, and XP bonuses to you. Effects that gain them life on hit or kill will allow them to survive much longer. Ability modifiers such as Dex, Vit, Str, and Int will give them 2.5x the benefit that similar effects will grant you.
While they're never going to do as much damage as you will, they do contribute significantly to solo play, and are capable of killing monsters on their own. Improving their gear directly improves their ability to do so.
In addition, certain gear abilities can also trigger from follower attacks. Most notably, giving your follower a weapon with +cold damage will give a (very) minor snare effect to any enemies they hit. This is particularly effective when used on the scoundrel, in conjunction with his attack that fires three arrows at once.