Freedoms 1 and 3 from the Free Software Definition are:
The freedom to study how the program works, and change it so it does your computing as you wish (freedom 1). Access to the source code is a precondition for this.
The freedom to distribute copies of your modified versions to others (freedom 3). By doing this you can give the whole community a chance to benefit from your changes. Access to the source code is a precondition for this.
Point 1 of the Open Source Definition, linked in the question, also implies these freedoms.
These mean that, to be free software, you must be freely able to modify the code and distribute it. Restricting these freedoms is usually not allowed.
However, going by the OSD, if you allow recipients of the program a way to modify how the program works and then distribute, it doesn't have to be by allowing distribution of the modified source code.
As to why someone would want to do this... I don't know. Perhaps the author is protective of how they wrote their code and doesn't want to see it mutilated in other redistributions of their software - though there's probably a more valid reason than that.