Part of the problem is confusing the game with real life. I don't mean that in an insulting way; it's just that before SH3 and now SH4 no game ever modelled both periscopes, and it was something everybody said they wanted. I try to use both periscopes historically, just 'cause.
In real life both scopes have the same magnifications. The purpose of the observation scope is to observe, obviously. It does let in more light for night use, and cranks up 85 degrees for spotting aircraft. It also leaves a larger wake.
Here is pretty much everything you ever wanted to know about periscopes:
http://www.maritime.org/fleetsub/pscope/index.htm