They just sit around punching monsters. Wow, great job, then after everybody gets their asses kicked we finally bring out the huge sword chainsaw that can kill the monsters pretty easily.
They stated at the beginning of the movie that the Kaiju blood is laden with ammonia and is heavily toxic to the environment. So, it makes sense that they want to avoid spilling it. It was a little silly that they made the characters act like they forgot about it (they probably never use it because of the aforementioned issue), but they could have said something about it not mattering as much since they're in the upper atmosphere.
It was great until I read a website afterwards that said it was dumb because it would be easier to kill the monsters with a railgun from space than fight them....
Given that a railgun is a large piece of metal being dropped from space, wouldn't that have a potential to cause a rather large amount of damage to the surrounding area? Remember the railgun in G.I. Joe 2, which is probably where they got the idea from?

Also, how do you propose to keep it locked onto the Kaiju the whole time? Even if you can make it adjust its course like missiles do with their fins, can you guarantee that the hive-mind capability of the Kaiju won't just be able to realize that the railgun munition is coming and dodge it much closer to when the ordinance is about to hit?