Airline Reservation Boondoggle

I have to wonder how much the airlines would be different if they would just charge a flat rate for a ticket for each flight. I can't quite figure out what benefit they have by price fluctuations across different days and travel services.
I was notified of an upcoming trip, so I went to US Airways (Philadelphia is a major hub, so try NOT flying US Airways out of there and tell me how far you get) to look into booking my flight. The price for this trip came up under $500 (it cost over $900 the last time, but I was flying at different times to the same place.) I suddenly balked, remembering that my seat preferences were already set in Expedia.com, so I was guaranteed an aisle seat. I actually prefer a window seat, but I've had to wake up way too many people on longer flights to get out of my seat so I just book aisle now. When I put my dates in Expedia, I was presented with a list of flight segments to choose from. I found that the two flights US Airways gave me were half the price of the identical flights in Expedia. I went back to US Airways and booked the trip directly with them. I was given my choice of seats, and I was actually able to book seats next to one of the people I'm traveling with.
I honestly don't understand why airline ticket prices can vary so much. When I first moved to New Jersey in May of 1999, I found out a friend in San Diego was getting married that September. I started looking for plane tickets to San Diego for his wedding. Over the weeks until I booked the ticket, I watched ticket prices for the same flight fluctuate more than $500 depending on the day. The ticket started around $400, and went up to more than $900. I finally caught the price on a downward slump and booked the flight (round trip) for $400 or so.
Does anyone have a good explanation for why the airline industry, which is constantly bitching about losing revenue, uses a pricing scheme that doesn't seem to be rooted in reality?