The Wizard is a humbug, a fake and a fraud, but he is seen by the munchkins as 'Oz, The Great and Terrible'. He is a powerful wizard with a big influence on those that admire and look up to him. Although no one has seen him in person, there are characters in the movie that see The Wizard as being all powerful and mighty, they are seeing a facade and not the man he truly is.
The Wizard is an important character in the film because he is the man with the answers and is seen to have the ability to solve the problems the other characters have. He is also the 'Leader' for the Munchkins who see him as being the Almighty even though they have not seen his physical being.
Here is a clip when they walk into the throne room and see him for the first time scene here
In the above clip The Wizard portrays the character that he wants everyone to believe he is by using imagery and deception.
The Wizard is a person who is trying to be something he is not in real life and he has convinced the rest of the Oz population that he is this incredible being who is able to solve everyone's problems.