Are chinese characters allowed entered in URLs?
Punycode exists to be able to use non-Latin scripts in non-supported software. So whilst I like my site http://見.香港/ I can enter http://xn--nw2a.xn--j6w193g/ if I cannot enter the Unicode original form.
Some website developers program overly defensively, for example with Google Apps you cannot use punycode domains at all due to aggressive white listing that has not updated with ICANN standards.