Shaving one character off, taking it down to 64, leaves a number that is much easier for computers (especially early computers) to work with than 65, and it would still look almost exactly like a normal business typed page to an ordinary reader since the difference between a 64-character row and a 65-character row is almost imperceptible on printout, with, instead of a 65-character row's one-inch margins on both sides, a 64-character row having either one inch on one side and one & one-tenth inches on the other, or, if you were determined to be exactly the same on both sides, one & one TWENTIETH of an inch margin (half a character extra) on both sides.
I'm happy to make this case myself, IE, 64 characters per row being *much* better than 40 and, in practice, hardly a downgrade from 80, whenever anyone gives me a chance. As you note, it isn't much of a handicap compared to 80 columns for presenting "WYSIWYG" views of a printed page when the standard for such was 10 point Courier type, and just more broadly, well, since it's 80% as wide as 80 column it's not really that much worse for other applications like spreadsheets. (For a typical numeric spreadsheet the difference is going to be maybe one less column fits horizontally on the screen, verses only *half* as many.) And, yes, from a technical standpoint it has all sort of other winning attributes; 64 columns x 16 row are nice round binary numbers for the counters you need in the video hardware, 64x16 = 1024, IE, exactly one binary K, so it makes the most optimal possible use of 1K of video memory (40x25 wastes 24 bytes), etc...
(All of these are great reasons why 64 column display systems were actually very common in the middle 1970's; many early terminals and most of the first generation of S-100 video cards used this format, and the TRS-80's video system is essentially just a cheap implementation of a PolyMorphic Systems VTI card built directly into the computer. It just so happened, though, that for various reasons, including obscure factors like the column format of IBM punch cards, by 1980 most business machines had moved to 80 columns. By this time the price/simplicity advantages were mattering less because memory was getting cheaper and programmable CRTC chips were replacing discrete logic, so the TRS-80 Model III was kind of a fossil when it came out in 1980. It was still a totally usable display format, which the TRS-80 was kind of stuck with for backwards compatibility, but in the broader univers it wasn't the standard anymore.)
Anyway, Here's the problem: most televisions can't display 64 columns clearly enough to make it a practical format for "TV computers". Even in black and white it's going to be unacceptably muddy through an RF modulator, and even if you use composite (which most TVs didn't offer in the early/mid-80's) you're going to have issues if you support color. (There were companies like Apple that sold color composite monitors intended to be used with the 80-column capable Apple IIe, but on the computer side the IIe had a "color killer" circuit that turned off colorburst in text mode, and some of those Apple monitors also included a "green" switch that explicitly prevented them from mistaking dot patterns for color information. A IIe's 80 column mode is... pretty bad, on a normal non-tweaked color composite TV set, and you'll get similar non-optimal results if you hook a TRS-80 Model I up to one despite the fact the Model I *can't* generate a color burst. This is why most "serious" 80 column computers that supported color used RGB.) This "you need a monitor" issue puts a price floor on how much you can charge for a 64 column machine, and that floor's a lot higher than the Sinclair ZX-81 that Commodore supposedly built the TED to compete with...
But again, here we are again wondering to how *anyone* inside or outside Commodore could then come back around and decide that, yeah, that video chip they built *specifically* to compete with a sub-$100 computer and display on domestic TV sets suddenly made sense as the core of a "business machine". I mean... it's like if you were working at Schwinn bicycles designing tricycles for toddlers and suddenly your boss taps you on the shoulder and says "Hey, great work there, I love it. Now I want you to take that thing and get it set up so we can enter it in the Tour de France.". Sorry, no matter how great of a todders' trike you've engineered it's just not fit for that application. If you need a cheap bike for the Tour de France you're going to need bigger wheels and a chain, just stretching out the frame of a kid's trike so a grown man can sit on it isn't going to cut it. And, well, ultimately this is why the market for "home computers" that hooked up to your TV imploded not long after the 1983 video game crash; the expectations for what people wanted to do with computers, as a whole, ended up converging with the "business computer" spec such that you just couldn't cut that corner anymore.