I believe that all the cloth style wrap is a fiberglass base material, then dyed to give it color. I do not think that the color holds up to the heat as I have seen it change colors, going back to the base color of white as well. Still seems to work the same but the color is gone. The reason I do not wrap the whole pipe is then it acts like a blanket to the pipe. The heat has nowhere to go and it then just get hotter on the pipe itself. So by leaving an open area you give the heat a place to get out and not act like a blanket but more like a heat shield.
One other thing about cloth style wraps is that your pipe underneath the wrap will rot away over time. The cloth holds moisture as it cools off which allows the moisture to sit against the metal until it warms up again. This constant cycle of moisture then heat against the pipes causes the rotting to happen. Some people believe that a SS pipe solves the issue but most of the HD pipes that are made are out of a low grade SS and it really doesn't stop the rotting when wrapped. In the automotive world most if not all header manufactures will void there warranty if the pipes are fully wrapped for this very reason.