In addition to the benefits of keeping your vassals weak against you as well as generating more councillors who they tend to assign to various beneficial jobs (these are the least important reasons IMO), the point must be made that every layer of government (dukes over your counts, kings over your dukes - heck, counts over your baronies) slashes the income that finds its way into your pockets from all of those holdings. Count-level vassals collect percentage taxes from the baronies based on tax laws. If there's a duke above them, they pay the duke a percentage of that percentage. If there's a king between the duke and you, the king gets paid a percentage of that percentage, before paying you a percentage of what he gets from the duke. So unless you keep your doge small enough that all of the holdings in his duchy can remain in his demesne (resulting in a huge holding income penalty), you're talking about at most 45% of the taxes you would get from those counties actually reaching your pocket.
So even though it results in an increase in overall money generation, the boost in taxes -you- get from the doge's capital city will very likely be less money than the loss of taxes you get from the doge gobbling up at -least- 55% of all the taxes from the counties that used to pay you directly. All for the benefit of extra (empire) income in one city. Very likely, it'll make Doge Shövenstüff richer and you slightly poorer. And just as a proponent of duchies mentioned about vassals using their councillors unwisely, I don't really look at Doge Shövenstüff having more money being a good thing - he may build more improvements, or spend it on stuff like Decisions for his own benefit, assassinating your other vassals, your kids, you, fabricating claims he'll never have the military backing to push, or revolting against you because he's stupid.
The same huge tax penalty applies to dukes (worse!). And even with a -30(!!!) opinion hit to dukes to max feudal taxes, you're only getting 30% of those counties' tax obligations to their direct liege (who used to be you) instead of 100%. Oh, and did I mention the AI will often do odd things like lower taxes for their subordinates to the lowest level possible? Just so Count A'I can feel important like a human player by wasting his extra money trying to kill his way to power.
There are reasons to go either route, but there are some very good reasons people have for the '1 county' philosophy. While this is just too damn much micromanagement for me, I go for a middle-ground - avoiding layers of government between me and my vassals, but giving vassals a couple of counties (but never a majority within a duchy).