The easiest way to stop the bathtub from overflowing is to turn off the water. If the faucet leaks, we have to pull the plug to let the dripping water out the drain as fast as it comes into the tub.
Warm, humid air leaking into the walls of a house is like a faucet flooding the tub. Even a good wall, in winter, is like a frozen drain -- if we don't at least close the faucet a little, we will inevitably have a flood. Sealing the air leaks on the inside of the wall is like turning off the faucet. Unfortunately, in an old house there will always be some leaks, just like a dripping faucet. So we have to seal off most of the leaks and pull the plug, too -- allowing the outside of the wall to "breath."
Breathing means that, from directly under the sealed plaster, right through all the wall materials, humidity has to be able to find its way to the great outdoors. If it doesn't, it will accumulate, flood, and perhaps cause dry rot.
Water vapour can go through most wall materials, including insulation, wood, and sheathing paper. It needs to go around materials (through the cracks between sheets) like plywood and Styrofoam (except Styrofoam "CladMate" sold only in Canada which is not a vapour barrier). Once it filters its way to the outside of the sheathing paper, it gets picked up by direct, outside air currents under the siding -- the outside wall ventilation.
Anything that blocks the breathing process can contribute to moisture accumulation, wet insulation, and even dry rot in the studs. If the sheathing (usually plywood) does not let the moisture by, it traps it inside the wall cavity with the insulation. For this reason builders do not seal the joints between the plywood sheets, nor the joints on insulation on the outside of the house, with the exception of air barrier house wrap systems, (use the keyword "house wrap" to locate the title "IS TRADITIONAL BUILDING PAPER GOOD TO PUT ON MY HOUSE?"). The sheathing paper is designed to stop rain water from reaching the sheathing, but if it does not breath at the same time, moisture will accumulate on the sheathing from the inside. If the siding has no ventilation, the water vapour can even push its way through the paint, causing the paint to peel on the side of the house. For this reason, most siding has a small air space between it and the sheathing paper, and aluminum and vinyl siding has breathing holes under every piece of siding. If you apply too much caulking to the outside of the house -- more than is necessary to keep driving rain and snow from getting in -- you can easily trap damaging moisture inside the walls. The inside of the house should be sealed, but the outside only sheltered.
In our Canadian winter, extended periods of below-freezing temperatures block the breathing process in an insulated wall by freezing and accumulating moisture either on the inside of the sheathing or on the underside of the siding. So it is extremely important that the sources of humidity -- the air leaks from the house -- are as small as possible, so that too much frost will not accumulate before warmer weather allows it to continue its journey through the wall. Homeowners in very cold regions have to worry about long, slow moisture accumulation and then spring floods. Milder regions will freeze and thaw, freeze and thaw -- but rarely stay warm long enough to completely dry out the wall between freezes. This creates ice blocks in the walls, which is worse than frost. Canadian walls must breath well enough to dry out the frozen accumulation as rapidly as possible whenever a warm day or two comes by, and again quickly in the spring before the water in the wall can cause any damage.
In many areas of Canada (the North and Newfoundland, for example ) Out-door temperature and humidity conditions don't allow sufficient time to dry the walls out. As a result, rot occurs in the structure of the house. In these regions we must work doubly hard to prevent moisture from getting into the walls and attics in the first place. Winter accumulation and summer drying doesn't give a big enough "forgiveness factor" -- forgiveness for problems inside the house. In fact, the dependence of air's condensation and drying properties on temperature is the basis of our differences with the United States. Canada is simply much colder, and so we have much less room for error. If there are too many holes inside the house and the outside air is too cold, cold-air ventilation will not solve the problem. Until global warming melts all the snow, we'll have to plug up the leaks inside our houses and make sure the wall breathes outward as freely as possible whenever winter thaws.