The idea behind it, in addition to providing some instulation for the hood, is that in the event of an engine fire it would fall down and smoother the fire and thus putting it out. I think we would all agree that with engine fires we've seen in the community that there is something of a flaw in that theory.
As for the insulation part, Im not sure as I have never tried, if would damage the paint on the hood if removed, particularly on lots of city driving.