So what's the reason for episodes?

[brickey.8]

What's the reason for dividing the game into five-level episodes, and making you beat the whole episode before saving?

It doesn't really detract from the game any, but it's a very unusual design decision. The trend in most modern games is towards quicksaves and save-anywheres whenever they're easy/practical, unless the developers feel that would reduce the difficulty (but that's not an issue for you since there's the same number of checkpoints). At a glance, all it seems to do is limit when you're allowed to quit playing, moreso the later in the game you are (since harder levels take longer).

I know you've had this since the beginning and you've stuck to it through three games. So what was the purpose? Adding suspense?

[metanet_raigan]

The main reason is that it provides context for collecting gold -- this way you can skip some gold in one level but pick some up in the next if you need it.

Also the levels are so short, they just seemed a bit too weak individually, but packaged together there was a bit more opportunity to create "drama" (eg easy level, then harder, then harder, then easy, then hardest).