Blogs help small businesses. From attracting customers to retain those they already have, small business blogs can be a big boon for small businesses. But perhaps the best thing about a small business blog is that it can help the small business get higher search engine rankings for a wider variety of keywords.
Look at it this way: if a small business had two web sites, it would be confusing, and one of them would be considered spamming the search engines. But if a small business has a web site, with a separately hosted blog, and the two link to each other, it's considered good business and a smart use of the internet. Since the blog and the web site link to each other, they both help each other get higher search engine ranks. And the blog can go after a whole set of keywords and phrases that the web site didn't, further broadening the traffic and visitors that can be attracted through the search engines.
To help explain the variety of ways that blogs can help small businesses, Scott Supak of Bald Mt. Press (a very small business) started a blog about small business blogs and how they can help businesses with customer service and higher search engine ranks.