The idea is that parties have to appeal to a various groups in society in order to win elections, preventing them from taking any position that is too obnoxious to any one group. Thus, centrism.
Systems with ranked choice or similar measures to encourage smaller parties end up with a similar situation, but with less stability. Since those parties appeal to narrower bands of society, they are unable to form a government. Eventually they are forced into coalition, which brings them to the same place as the major parties in FPTP: compromise. Yet, since coalitions are inherently more fragile than parties, you get less stability, and less institutional pressure on individuals in government and cabinet to represent wider interests.