The tyrannosaur charges across the plain and clamps down on the dwarven fighter, its fangs piercing its breastplate and drawing blood. With desperate effort and through a haze of pain the dwarf twists around and strikes the tyrannosaur against the side of its jaw with his dwarven waraxe.
Now the damage from this blow might or might not cause the tyrannosaur to release the dwarf instead of trying to swallow him whole. Normally, the dwarf (grapple +12) would have had little chance against the tyrannosaur (grapple +30) but the damage now gives him a fighting chance. This is the way I imagine CQF, and it makes perfect sense to me. Now consider the following, by interpreting CQF by the RAW:
DM:
The tyrannosaur charges across the plain, it attacks your dwarf and hits: 20 damage. It can now use its Improved Grab to begin swallowing you.
Non-rules-savvy player:
Didn't I take some kind of feat that helped in these situations last level? What was it called? Here it is, Close Quarters Fighting.
DM:
No, it doesn't help you in this situation.
Non-rules-savvy player:
(reading) Why? It says here it helps against monsters with Improved Grab. I should get an AoO that may help me in the grapple?
DM:
Well, you can't make the AoO because you don't threaten the tyrannosaur. You cannot reach it with your dwarven waraxe.
Non-rules-savvy player:
What do you mean, "I cannot reach it"! Its got its f**king jaws clamped down on my waist.
DM:
That's the rules. You have to be able to reach it, and you cannot strike at appendages with which the monster attacks you, such as claws or in this case, its head.
Non-rules-savvy player:
You mean to say that I should be able to hit him in the knee or something? And that would maybe make him let go as he tries to grab me?
DM:
Sort of.
Non-rules-savvy player:
Can my dwarf try this 'hitting in the knee' business, on his turn?
DM:
No, he is holding a dwarven waraxe, that it too big a weapon to use in a grapple, CQF doesn't help there too.
Non-rules-savvy player:
If I let go of the waraxe and draw my dagger, can I try it then?
DM:
You can try, but you must win a grapple check to draw the dagger, all your attacks will be at a -4 penalty, and 'hitting him in the knee', won't aid you in escaping from its mouth. CQF helps in none of these cases.
Non-rules-savvy player:
Where DOES CQF help me with then?
DM:
If he had done the same from one step closer, it could have helped.
Non-rules-savvy player:
Can't you make him do that then?
DM:
I'm sorry, he has to charge to the nearest square where he can attack you, so he is not allowed to charge and attack you from 5 ft.
Non-rules-savvy player:
Maybe I could have readied an attack as he tries to bite me.
DM:
Would not work as well.
Non-rules-savvy player:
I my game I am dealing with real-life players, so I rather rule 0 CQF than trying to explain why it doesn't work as most players suspect it would. And game balance would be preserved just fine.