I’ll just let the original words speak for me here (and if you don’t know from whence these words come, get thee to a library or bookshoppe immediately):

A towel, it says, is about the most massively useful thing an interstellar hitchhiker can have. Partly it has great practical value — you can wrap it around you for warmth as you bound across the cold moons of Jaglan Beta; you can lie on it on the brilliant marble sanded beaches of Santraginus V, inhaling the heady sea vapours; you can sleep under it beneath the stars which shine so redly on the desert world of Kakrafoon; use it to sail a mini raft down the slow heavy river Moth; wet it for use in hand-tohand-combat; wrap it round your head to ward off noxious fumes or to avoid the gaze of the Ravenous Bugblatter Beast of Traal (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-hitchhiker) discovers that a hitchhiker 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, space suit etc., etc. Furthermore, the strag will then happily lend the hitchhiker any of these or a dozen other items that the hitchhiker might accidentally have “lost”. What the strag will think is that any man who can hitch the length and breadth of the galaxy, 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.

Hence a phrase which has passed into hitch hiking slang, as in “Hey, you sass that hoopy Ford Prefect? There’s a frood who really knows where his towel is.” (Sass: know, be aware of, meet, have sex with; hoopy: really together guy; frood: really amazingly together guy)

Ah, Towel Day, one of the best completely arbitrary made-up holidays, since it’s all in good fun, reminds us of something fun and entertaining without asking anything in return, and no part of society insists we have to pay financial tribute to the greeting-card-industrial complex or spend two months salary on a shiny piece of carbon.