I believe it prevents the heat from transfering throught to the outside of the header, instead, the heat transfers thru the exhaust gasses which for whatever benefit is supposedly better for performance.
One problem for a street car is that often times these 'wraps' can cause rust problems to your header... a race car there is not a problem.
Option would be Jet hot coating... these are my headers with A LOT of miles on them. The grease spots are from my dirty gloves when I pulled them off the car.