So, who is doing what?
NY state has a group studying digitizing (http://www.nysl.nysed.gov/libdev/adviscns/rac/dgtlinit.htm), this link mentions several collections in the Background section. Libraries digitize their items to make them more accessible to genealogists and local historians, to teachers using them for social studies, to newspaper reporters doing historical research, and the like. Museums digitize items to tell their stories. The Rochester (NY) Museum and Science Center (RSMC) has digitized many of their Albert R Stone photos and put them in the Rochester Images web site. That collection consists of roughly 20,000 pictures of high quality. As the site points out, Mr. Stone was a staff photographer for the Rochester Herald and the Democrat and Chronicle between 1904 and 1936. He took pictures of newsworthy events and the people and places associated with those events. Topics include World War I, women's suffrage, prohibition, African Americans and immigrant groups, recreation, and transportation during a time when automobiles slowly replaced horse and wagon. This example is important because it fills a gap in an otherwise good collection. By partnering with the RMSC, our library has made available to researchers a newspaper index from 1818-1897; pictures from 1904 -1936; and news clippings from 1936 to date.
The point of mentioning all this is that no one place is the be-all and end-all of research. Various partners can combine their collections [access, not ownership is the mantra], so everyone benefits. The partners do by having their collections at least partially preserved in a digital format; and the users do because they can access various materials at their convenience. Another example is the project currently underway to provide an online index to the 1855 state census of Monroe County. People will be able to access that, and we plan to give copies to the local town historians to assist in their research. The Brighton, NY town historian has already purchased digital copies of the census for her town.
So how do libraries and other groups determine what to digitize?
Unlike individuals, who can do whatever they please to the extent of their own funding, public organizations have to have plan and manage a work flow. It makes no sense to digitize things that you can't put online or show off. (A case could be made for internal storage - but that begs the question of why have it, if you are not going to use it?). Digitizing hasn't yet been anointed as the be-all and end-all, but at the 2007 annual conference of the American Association for State and Local History, the various groups therein affirmed that it was a lot better than doing nothing at all.
In our own case, Rochester history books pre-1924 [copyright] were examined. These items were found by doing a literature search of the subject Rochester (N.Y.) History with a date limit pre-1924. Items were then checked out in First Search [a bibliographic tool used by libraries] to determine their rarity. Items were found on the shelves and searched for ownership. You should never digitize anything that you don't own, for a number of reasons.
Items identified included church records. These are very useful in genealogical and historical research, but privacy issues also must be considered. Most places that will let you digitize their records have a cut-off date of about 1910, just for that reason. (It remains to be seen what the "New Familysearch" from the Latter-Day Saints church will do about this. As of this writing, it has not been released widely. See: http://ancestryinsider.blogspot.com/2008/04/new-familysearch-update-for-tax-day.html) Our library has a number of them, and the local Rochester Genealogical Society (RGS) Computer Interest Group, Church Records Preservation Committee has a large project underway. They searched local churches and found a number that were stored in file cabinets or stacked on shelves and were in poor, deteriorating condition. Many had not been microfilmed by the LDS or archived in any way. The Penfield [NY] United Methodist Church was the first project. The churches, the RGS and the Rochester Public Library will have copies. They are not online as of this writing, but will be shortly.
Other kinds of items could include museum items such an anthropological reports - remember, genealogy is more than just names and dates. It is necessary to place people in the context of their time and place. If you have Native American ancestry, as many people do, these kinds of studies could be really informative. Many such studies are done about early settlers of a region, and of course, Native Americans predated any European settlers.
Maps are extremely useful in placing a person or family or business in a certain place at a certain time. Libraries and societies have large collections. But Cornell University in Ithac, NY has 300,000 maps! Histories of such groups as the police, firemen, brewers, etc. are likely candidates. So are histories of groups like Freemasons and other fraternal or sororal groups. (My own personal favorite of the week is the Knights of Everlasting Pleasure, which has been digitized and appears on Google Docs, as part of the History of Abercorn: 1929-2004 by Jean-Rémi Brault).
And of course county histories, historical sketches (both graphic and text) of an area. And what about local authors? If your ancestor was one, it would be nice to see what they wrote. Religious histories also come to mind - various churches, synagogues, and lists of diocesan staff are just some ideas. There are a wealth of items which can be done, and all of them help to add to your genealogical research.
How do individuals or smaller societies and libraries benefit by all this? As mentioned above, by being able to conserve, preserve, make available and advertise themselves. Individuals can look at the kinds of things that are being digitized and do it themselves - there are various books available that can show you how.