This description may not be strictly correct in all the technicalities, but it can give a general idea of how this works.
The cash value is the amount of money in the prize pool. For simplicity, let's assume one person wins the jackpot. If he selects the cash value option, he receives the cash value amount, which is money already held by the lottery commission.
If the winner selects the annuitized payment option, he receives the first annual payment, and the rest (of the cash value) is deposited in an annuity. That annuity pays the winner for the appropriate number of years. The money left in the annuity collects interest, which is why the total payments equal more than the amount deposited. The total of those payments is what makes the annuitized value of the jackpot, which is the value advertised.
Mega Millions annuities pay an equal amount every year, for 25 years. There are 26 payments; one is immediate, and the last one is 25 years later.
You may notice that Powerball cash values are lower, relative to the annuitized value, than those of Mega Millions. Partly, this is because Powerball annuities are paid out over 29 years (in 30 payments). This gives the deposited amount in the annuity more time to grow. Also, Powerball annuities are structured differently. The annual payment increases by 4% each year. As a result, the last payment is about three times the amount of the first payment, made 29 years earlier. As another result, the earlier withdrawals from the annuity are smaller than they would be if all payments were equal. This leaves more money in the annuity longer, so interest compounds faster. This benefits the game, because they get to advertise higher jackpots than the equal-payment type of annuity would support. It also benefits the winner who selects that option, because his annual income increases each year, to keep up with inflation, and because it increases his total winnings.
I don't know if it does any harm to the winner who selects the cash value payment option. The amount of the cash value is related to ticket sales. I wouldn't think that would change whether the annuity has equal or graduated payments, unless the percentage of ticket sales set aside for the cash value is altered. There may be a perception that the Powerball jackpot loses more value if you select the cash option, but I think it's more accurate to say that what you don't gain in the annuity is of higher value, relative to an equivalent Mega Millions jackpot. In other words, the Powerball graduated annuity is a better investment, an investment you don't make if you take the cash value payment option.
I hope this description has been helpful.