Two main reasons.
1) Really old wire: It was used as THE insulation.
2) Newer stuff it is used as filler to make the assembled cable correctly round or Romex properly shaped to prevent kinking and provide filler as the jacket material is laid on. Otherwise the bare copper wire would be too small a surface to physically tie the two main conductors together with jacketing.
Another issue is that some of the modern insulation materials can experience cold flow. A layer of paper can diffuse the stresses for minimizing that effect.
All of the above solutions are correct but it is also used to identify the manufacturing batch if there is any problem with the product. Similar identification schemes use a few stands twisted cotton of controlled colours. Rope makers came up with this one decades ago.
