The advantages of on-screen navigation buttons, on certain Android devices, including the Nexus, allow OEMs to reduce the bezel on the phone’s front, even if not every phone-maker takes advantage of that. Disadvantages include slightly smaller screen real-estate, because the on-screen buttons themselves take up a stripe of pixels from the available total.
According to this latest leak by @evleaks, we’re looking at on-screen buttons in the upcoming “Blue” release of Windows Phone, believed to be version 8.1. We have the same back, Windows, and search buttons, and The Verge is speculating on the fact that this will not be compulsory, but up to the OEM. That means lower-end devices, in order to reduce OEMs’ production costs, might opt for the on-screen display of navigation keys, opposed to higher-end devices, which can still rock the classic buttons (separate) on the front.
Another speculation is that this is Microsoft’s way of reducing the hardware differences (requirements) between Android and Windows Phone, so that Android phone makers can find it easy to reuse existing hardware in order to release Windows Phones.