The primary difference between the wrapper module and the menu item is that with the module you have control over what template position you use to display the iframe. With the menu item, the external site is displayed within the page's main content area.
As mentioned, iframes were used much more in the past but fell out of favor for several reasons. It can be difficult to make an iframe look good as you are relying on the external website's design for a good chunk of the page. Also, due to the size of the page being included, you will most likely have to rely on scrollbars to view all of the content. Lastly, in the past there were issues with cross-browser compatibility with iframes. It wasn't always clear how each site would behave when viewed between each available browser.
Used sparingly and with well thought out planning, iframe wrappers can still be a valuable tool in a web developer's toolbox.
Joomla wrappers and their use are explained in detail in the Core Modules series of our premium Joomla tutorial course - Joomla Pro.