The physics of it are that exhaust header wrap has the effect of making the header primary effectively shorter. Contrary to your grandfather's old wives tales, shorter header primaries tend to improve low-end and midrange performance and throttle response. The difference is not insignificant, BTW; probably in the range of 10-50% reduction in effective header length. Also, higher temperature exhaust makes the pipe effectively larger in diameter, because there are fewer molecules of exhaust per cc. The trick here is that these effects are dynamic vs. engine rpm. So at low rpms, the pipes are effectively "longer" and "smaller", since the rate of heat being put into the exhaust is lower. As RPMs and exhaust pressure increase, the effect is to shorten the primary effectively, and reduce restriction along the length of the pipe. If these theories are correct, which is to say, if I am correct (which is suspect...), then it would have the effect of broadening the torque curve.
Just like cone filters, "pods" etc., most of the actual reason people do it is not for the marginal performance changes, but cosmetic. There's a big downside, which is that keeping this heat in will actually enhance corrosion, and the wrap itself can hold moisture against the pipe which as you know will increase corrosion. So if the pipes are rusted and you wrap them, they will rust more, and faster, without you seeing it happen. Also, the exhaust sounds a little different with the wrap.
Full disclosure: I do have this header wrap on my GS500 pipes, which are not particularly rusted but had a pretty ugly paint job that I wasn't really able to improve. It did have a noticeable effect on performance for that bike. It was enough change that it was tricky to get it tuned to run just right with the pipe wrap. Point is, it was not no effect, but just enough to require some carb tuning to get it to run perfectly. It's not something you can fix with just a half a turn on the pilot screw. It's a small enough effect that you wouldn't likely notice it riding before and after but if you had two identical motorcycles, one with the pipe wrap and tuning and the other stock, you could probably detect the change if you rode them back to back.
I am considering doing the pipe wrap on my Scrambler for cosmetic and sound reasons, but it's dialed in enough right now that I hate to have to retune it.