The problem is it conveys the wrong idea. Falsity of expression is no grounds for persecution. Moreover, the word "fire" has been yelled many, many times in many, many crowded theaters (during films, plays, concerts, etc.) without anything bad happening. The problem is that it tried to describe a very narrow situation (falsely causing panic which leads to people being hurt by making them believe there's imminent danger) by describing a much wider situation, and then making conclusions from this as if the wider situation was the narrower situation.
That is exactly what happened when this phrase was first used (it was used when a person was prosecuted for speaking against the war under the guise that he's "hurting the war effort" - you can see how this trick works) - and it has been used many times after to validate persecution of speech that hurt nobody but that you could construe a byzantine logical way it could in theory hurt somebody is you really really want to believe it. And that's exactly the problem.
That is exactly what happened when this phrase was first used (it was used when a person was prosecuted for speaking against the war under the guise that he's "hurting the war effort" - you can see how this trick works) - and it has been used many times after to validate persecution of speech that hurt nobody but that you could construe a byzantine logical way it could in theory hurt somebody is you really really want to believe it. And that's exactly the problem.