It's a cosmetic thing. Some think it 'looks cool', while some don't. If you live in a damp environment (like Washington) it can trap moisture and rot your pipes - especially if you're a 'short ride' rider.
Define "short ride". Most of my riding is a 7.5 mile commute, but I have been known to ride up in them thar hills by Mt. St. Helens
A short ride to me is one that does not get the engine to operating temperature enough to boil the condensation out of the oil.
Bingo! Depends on ride length (time or distance), and exhaust flow (engine speed over distance would be the determining factor there) to get the oil, and the exhaust pipes hot enough to burn out any moisture. I've read that consistently using these bikes for short trips can speed up the rotting of the stock pipes over time - not that I've seen scientific evidence to back it...but I buy the theory. I've got a crummy, rusted, dented 4-1 with a '80's CBR muffler on my 500/4, so I don't really worry about it. If I had brand new pipes, I wouldn't want to wrap them anyway. So, IMHO if you've got crummy, ugly pipes like mine, and you like the wrapped look, go for it. I tried to wrap mine, but didn't like the way it looked on my particular bike. The right color wrap can look pretty bad ass on some bikes.