A custom 404 page is your opportunity to turn a bad experience into a good one. No matter how well built your website is you can't stop someone from typing a URL in their address incorrectly, so you need to be prepared for those users who somehow can't find the content they are looking for.
A custom 404 page gives you an opportunity to help that user. A good custom 404 page will explain clearly that the page they are looking for is not there and remind them to check the URL they typed in to check for typos. It will also offer them links to possibly related pages (if you can determine that) and also links to important pages like your home page or main product pages (if they exist). You also can have a link to a HTML sitemap and a search page to help them find the content they are looking for.
Basically a custom 404 page is very responsive customer service. Someone couldn't find what they are looking for and your website is ready to give them a hand.