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An identity function is sometimes useful in functional-style programming as a dummy or default value.
For example, we can sometimes see a pattern like this (e.g. in itertools.groupby):
def f(params, key=None):
 if key is None:
 key = lambda x: x
 ...
However, if we had a canonical itentity function:
def identity(x):
 return x
we could instead write:
def f(params, key=identity):
 ...
and the intended use of the function f and it's functioning would be more obvious simply from it's signature, while also saving a little code. 
As zen of Python says: Explicit is better than implicit.
Of course, we can now write:
def f(params, key=lambda x: x):
 ...
but the reason why is not used is probably that it feels a bit awkward to more people than just me.