A square can make a compact subject easier to follow in a conversation: a plate, an object, a face, or a simple graphic that accompanies the text. It is not automatically the best shape for every Threads post. A wide group photograph or a tall illustration may lose too much when its original composition is cropped into a square.
The 1080×1080 dimensions here are our preparation preset, not a claim that Threads requires every image to use that size. Choose the shape because it preserves the point of the picture. If important context sits outside the square, use a different preset or keep the original proportions through Custom.
Look at the image together with what you intend to say. If the text explains a detail in the photograph, make sure that detail remains large enough to see. A beautiful crop that removes the evidence behind the comment is less useful than a slightly wider image that keeps the relevant context intact.