Basically the benefit on staying on-property is the free bus from the Airport, the ability to book fp+'s a month earlier, and a couple of extra magic hours (if you can be there from 7am, or until 2 am)
The disbenefit is pretty much the price, mostly you will may as much for a Disney motel (aka value) as you would for a top quality off-site hotel, or even your own condo/townhouse/villa.
Location/proximity is very dependant on where you stay, they are some off-site resorts which are just as close as the Disney Motels i.e. Pop Century, All-Stars etc.
To put it simply, it depends on how Disneyfied you need your vacation to be, and how much you're willing to pay for it.
Myself, despite being a huge Disney fan, I am quite happy to get off-site at the end of the day....yup, I would prefer to be on-site at a deluxe hotel.......but then, I've paid less for a 4-bedroom, 10 person villa for 10 nights then 2/3 nights would have cost in a standard room at any of the Disney Deluxes.