Yard signs, when done right, do the following:
1) Create some name recognition for the candidate- especially at the local level. While signs don't vote, they do place the name out there on a subliminal level.
2) They can signal a strong campaign organization to the politico's. We pay attention to how many signs are up are judge a campaign's effectiveness by them.
3) Can signal a campaign's momentum. For example, in the Town of Tonawanda a few years ago- a traditional Republican stronghold- a Dem. Town Council candidate went out one night and must have put up over 750 signs throughout the town. So when you went to sleep there were no signs and in the morning they seemed to appear out of no where and were everywhere. BTW, he won.
4) Can be used to deflate the opponent’s desire to go on. The first year I ran, I made sure that I filled my opponent’s street with my signs. He woke up one morning to find that a good number of his neighbors supported me. That couldn't have felt good.
5) If you get a lot of signs up, they signal to the voters that you are going to win. People like to vote for a winner.
There are a probably a few more reasons that I’m not thinking of this morning.