http://en.wikipedia.org/wiki/Terror_management_theory
Terror management theory can attempt to explain a lot of why we hold the dead in higher esteem. I had a professor who studied TMT and had a published experiment wherein people were asked to rate how favorably they thought of a person's life story. I'm struggling to find it online, but I'll explain the gist.
In one version, the man in the story was still living. In the other, he had died. The only thing that changed was the mention of the man's death. Everyone who read the death story viewed the man in much higher esteem. There were several versions of the story, ranging from the man as a thief/murderer, to the man as an upstanding professional. Everyone (on average, statistically significant to <.01% if I remember right) always rated the man higher when they mentioned that he had died, regardless of the story.
This is because we humans have a unique problem over other animals known as mortality salience. We know we're going to die, and it can terrify us. When we are reminded of our mortality, we tend to empathize more readily with those who have gone before us.
This theory may also explain other cultural signs of respect (funerals, stopping for funeral processions on the highway, etc). If you're interested in more, there's the link above. I'm not an expert on the topic, but I know a little bit about it through my psychology studies.
You may be confused about everyone's behavior partly because you've not experienced a lot of death in your personal life, but also because we as Americans don't really sit down and have discussions with our children and each other about how to emotionally handle the bigger tragedies in life like death, divorce, addiction, miscarriages, loss, illness, etc.
If you're interested in more, there's the link. I'm not an expert on the topic, but I know a little bit about it through my psychology studies.