A towel is about the most massively useful thing an hiker can have. Partly it has great practical
value - you can wrap it around you for warmth as you bound across the Presidentials; you can lie on it on the brilliant marble-sanded beaches of the Lost Coast, inhaling the heady sea vapours; you can sleep under it beneath the stars which shine so redly on the deserts of the SouthWest; use it to sail a mini raft down the slow heavy river ; wet it for use in hand-to-hand-combat; wrap it round your head to ward off noxious fumes or to avoid the gaze of a Ravenous Beast on Trail (a mindboggingly stupid animal, it assumes that if you can't see it, it can't see you - daft as a bush, but very ravenous); you can wave your towel in emergencies as a distress signal, and of course dry yourself off with it if it still seems to be clean enough.
More importantly, a towel has immense psychological value. For some reason, if a strag (strag: non-hiker) discovers that a hiker has his towel with him, he will automatically assume that he is also in possession of a toothbrush, face flannel, soap, tin of biscuits, flask, compass, map, ball of string, gnat spray, wet weather gear, wet suit etc., etc. Furthermore, the strag will then happily lend the hiker any of these or a dozen other items that the hitch hiker might accidentally have "lost". What the strag will think is that any man who can hike the length and breadth of the trail, rough it, slum it, struggle against terrible odds, win through, and still knows where his towel is is clearly a man to be reckoned with.
Special thanks to Douglas Adams :-)