The most reason why exchange seize user's asset is not being verify account, which is the most policy for many exchange, which everyone has to verify account as know your customer (KYC) before funding.
This should be one of the most sensible and expected reason out of the many as to why a centralized exchange can seize your funds, because ever before using a centralized exchange, you should know you can't use it without submitting KYC. There are many other flimsy, unexpected reasons as to why they can abuse their power and seize your funds, and these reasons occur more often imo.
What now makes them better than using a fiat system?
They are not better than the fiat system. Bitcoin is much better than the traditional fiat system, but centralized exchanges are completely antithetical to how Bitcoin functions, they are centralized just like the fiat system, but laden with far more risks and cons.