I agree that red-shirting a player is usually in the best interest of a player. Usually, they need that first year just to adjust to being in college (which most find is a LOT different than highschool!) But sometimes the kids actually get depressed that first year if they are not playing. I saw it happen to several student-athletes I worked with. I guess some identify so closely with being an athlete that it's hard on their self-esteem when they are not playing. Each case is just different, and you can only hope the coach makes the best call for the team and the individual.
Either way, a player can still get 5 years of scholarship. Either they get the red-shirt year paid for and then 4 years of eligibility after that, or if they play their first year they can get their first 4 years of eligibility and a 5th year after their eligibility is up all paid for. The NCAA allows that so that those freshmen who do play don't get "screwed" (for lack of a better word).