There are a few reasons for cedar wrapping:

1) To help keep the cigar's humidity while in transit.

2) If sheathed in cedar immediately and then aged for a few years, it can be to "flavor" the cigar or add a more cedar aroma to the smoke. But this is rare and unusual, at least in what I've come across.

3) Finally (at least this is the last reason I can think of/been told), vanity plain and simple. It looks good having a cigar wrapped in cedar.

That's all I've been told as to reasons for cedar wrapped cigars.