Wood is not as good an insulation material as is any of the products we call thermal insulation: fiberglass, Styrofoam etc. Yet up to 24% of our walls are wood all the way through. Metal framing is even less resistant to heat loss than is wood. Typically the insulation is placed in-between the studs and other framing members. Cold coming through the framing of the house is often responsible for condensation or related dirt marks on a wall or ceiling -- a very common problem with cathedral ceilings where you can actually see all the ceiling joists as dirt shadows. The picture shows how studs and other framing let the drywall get cold.
Insulated sheathing, be it made of ridged foam, semi-ridged fiberglass or other sheet materials placed right over all the framing, usually on the outside of the house, can block these weak points in the thermal protection of your house. It is simply a better way to build. Click here to see a good animation on Thermal Bridging.