On the exploit websites I see security analysts and hackers targeting the /etc/passwd file when showing the proof of concept.

If you have a local file inclusion or path traversal vulnerability on your server, and hackers are able to access (view, read, but NOT edit) the /etc/passwd file, what are the repercussions of this? Aren't all passwords obfuscated in this file by design?

The only real repercussion is reconnaissance - the attacker can learn login names and gecos fields (which sometimes help guess passwords) from the /etc/passwd file.

One reason for this is that, 20 years ago or so, most Unix variants shifted from keeping hashed passwords in the /etc/passwd file and moved them to /etc/shadow.  The reason for this was that /etc/passwd needed to be world readable for tools like 'finger' and 'ident' to work.  Once passwords were segregated into /etc/shadow, that file was made readable only by root.

That said, /etc/passwd remains a popular 'flag' for security analysts and hackers because it's a traditional "hey, I got what I shouldn't" file.  If you can read that, you can read other things under /etc as well, some of which can be useful to an attacker.  But it's harder to test for (say) /etc/yum.conf if you don't know if yum's on the system; /etc/passwd is always there and is a reliable test of whether access worked.

Put differently, the implicit repercussion of getting /etc/passwd is that the attacker has circumvented controls and can get arbitrary readable files, which means "I win!"*

*No actual guarantee of win, express or implied
