If a tracer round struck its target it had the kinetic energy to still do damage, but it was NOT an AP or API round and because of the burning phosphorous was known to be slightly less accurate.

In addition to the stealth factor as already mentioned and the fact that air combat was still in its formative stages in the 1940's there was still considerable experimentation going on. There have been many accounts of pilots directing their armourors to load strictly AP/API in something similar to a 4:1 ratio (Gabreski specifically) and doing away with tracer completely.

There's also the overriding factor of "perception" which has proven many times to be inaccurate.

Aren't most WWII tracer rounds combined with something else? For instance the tracer round in the IL-2 belting is APIT. So its everything except explosive. Is there a finer detail that I'm missing?

No, you are not. They are always combined with something else. For example, the German 20mm caliber supported tracers on all types except for the Mienengeschosse. The 13mm on all types and the 7,92mm on the SmK (regular AP).

I have a book that shows many types of ammunition used in aerial warfare during the First and Second World Wars. The one thing that really got my attention is the German Mine Shell with a tracer. I never knew these existed until I saw the German info about it. I didn't see the 20mm, but the 30mm Mine Shells with tracers did exist.

Perhaps I stand corrected IceFire. It was certainly my understanding though it appears I'll need to implament a paradigm shift and read further.

I also don't feel right for tracers of IL2
 

It seems that physics of the tracer is not accurate as I expected. Shooting is the most important part in the game that give you the joy and excitemtent though the game itself is the best in almost all respects. And I always have kind of ill feeling to tracer of IL2. I hope it would be much improved in BOB. The speed of the bulled should reduce as it goes further. But it seems like it have constant speed. Maybe I'm wrong I just feel that way though.

The bullets in Il2 do slow down as they go further. I have tested this many times as I believe that the ballistics in a combat flight sim is paramount.
The simplest way to see this for yourself in Il2 is go to external view and zoom out far enough away that you can see the entire flight time of the tracers from the side view. This works best if you are sitting on a runway but can be done flying as well. Fire your guns and you will see the spacing between the tracers get closer and closer as they fly farther. This can only mean that the bullets are slowing down as they fly.