Here's a breakdown of why it's used:
* Doornails used to be hammered into place, and then often bent over on the inside of the door to secure them. Once a doornail was used, it was essentially useless for anything else. It was driven in, hammered flat, and permanently fixed. Therefore, it was considered "dead" in terms of usefulness.
* They would also be subjected to repeated hammering, further rendering them useless.
So, "dead as a doornail" implies something is not only dead but also completely and irreversibly useless, beyond any hope of revival.
The phrase is quite old and dates back to at least the 14th century. It's a vivid and enduring expression of finality.