The title says it all Why are rotary lip seals and ball bearings used in the input and output shafts of a lathe machine?
Why do you want to know? Are you considering replacing ball bearings with dry running bronze bushes??! Considering what might happen if you do that could answer your question.
Well what I want to know is why exactly are rotary lip seals and ball bearings used and not any other seal and bearing type?
As I said, if you see what would happen with a bronze bush, you'll know why those aren't used. And that will give you insight into why ball bearings are used. Similarly, consider what would happen with some other seal type.
Can I ask again what this is for?