What advantage is there to a larger hot water tank with a lower FHR?
Interesting question. I had an initial guess as to why this might be, and in the process of convincing myself, ie testing whether the guess holds up under inspection, I discovered a curious thing.

The Water Heating Basics page at hot-water-heaters-reviews.com explains that First Hour Delivery equals (tank capacity) * 0.7 + (recovery rate). When I tested the numbers on the Rheem data sheet I ran into a problem.

For the 50 gallon natural gas fuel heater they claim recovery of 42.4. The formula yields 50*0.7 + 42.4 = 77.4 and approximately matches the table's First Hour Delivery of 78.

But look at the line for the 40 gallon: they claim recovery at 40.4 and the formula yields 40*0.7 + 40.4 = 68.4. That's nowhere near the table's FHD of 86 -- but if somebody fat-fingers the data and transposes the digits, 68 becomes 86.

Could it be that the data sheet is mistaken?