If the Tankless heater is set for 125 F like most tank heaters, then the outlet temperature at the shower end will have to be adjusted or mixed with cold water to make a comfortable shower.
When the water is mixed the amount of water forced through the tankless heater is reduced, and if too much cold water is needed to temper the hot water then the flow rated though the heater may be reduced to below the minimum and the tankless heater will shut off. By setting the temperature closer to the useable temperature, there is more flow through the hot side of the system (through the heater) and thus keeps up any minimum flow requirements.
Tank heaters need higher settings so that the hot water in the tank "lasts longer" due to the mixing of cold water and to prevent bacteria from growing in the "stored" water.
Just because one sets a tankless heater to 125 or higher, the heater may not have the capability to reach that temperature due to heat input, flow rate or inlet water temperature. Every tankless heater has a maximum rise temperature based on the flow rate through the heater. The temperature setting will not increase this fact (as it it physics) and thus the temperature setting becomes a maximum setting or high limit. For example the Bosch 2400ES gas heater can heat a flow rate of 6.2 gpm 45 degrees F. If the inlet is 60 then the outlet would be 105 F no matter what the set point of the heater is above 105F.