Why is p2 default text style for text blocks in 7.1

By setting the middle option (P2) to be the default option for standard paragraph text, it allows you to add text that is larger (P1) or smaller (P3) than this without using custom code.

There's no technical or SEO reason for the names, they are just used for simplicity in the Rich Text Editor (RTE). They won't appear in the page markup - the part that the browser/search engine/site visitor sees - and so won't influence SEO differently. In the markup, all three will appear as "<p>". Squarespace just adds the class 'sqsrte-large' or 'sqsrte-small' for the non-standard options P1 and P3 respectively.