The reasons why Olympic football has age restriction is simple - if they would allow everyone to participate, it will lower the value of FIFA World Cup, and football would steal all attention from other sports. Maybe one of the reasons could be players peak form, just maybe. And I doubt that this is due to play-offs in other tournaments.
I don't know whether it was due to complaints from other sports that football will overshadow them. Primary reason, I guess was due to the concerns from European clubs, regarding the availability of their top players. But I like this setup. It still leaves the loophole of having 3 senior players in the team. So for example, it is possible to have Kylian Mbappé, Paul Pogba and Karim Benzema in the squad along with the younger players. My only issue is with different set of rules for both men's and women's competitions. Should have the same rules applicable for both the competitions.