In that mode, the terminal driver (not the terminal emulator) implements a very simple line editor, where you can type Backspace to erase a character, Ctrl-U to erase the whole line... When an application reads from the terminal device, it sees nothing until you press Return at which point the read() returns the full line including the last CR or LF character (by default, the terminal driver also translates the CR sent by your terminal upon Return to LF).
Now, if you want to send what you typed so far without pressing Enter, that's where you can enter the eof character. Upon receiving that character from the terminal emulator, the terminal driver submits the current content of the line, so that the application doing the read on it will receive it as is (and it won't include a trailing LF or CR character).
Now, modern shells, at their prompt do not set the terminal in icanon mode because they implement their own line editor which is much more advanced than the terminal driver built-in one. However, in their own line editor, to avoid confusing the users, they give the ^D character (or whatever the terminal's eof setting is with some) the same meaning (to signify eof).