I know pen and paper are not suited for every type of prototyping, and I think the fact that I like them has something to do with my own preferences. Still I've become a fan of "Pen & Paper prototyping" and I'd like to tell you why.
The space factor
Whether you're sitting at your desk in the office with all of your preferred office supplies, or you're just trying to get an idea out of your head before going to sleep in your bed, you only need a pen and a piece of paper to do the job. You don't have to get up and turn on the computer, you don't have to beg your boss once again to buy this expensive prototyping software. You can carry you prototype with you around the house and the office effortlessly.
The time factor
Sometimes ideas are ephemeral. Turning the computer on and starting the appropriate software - how long does it take? Do you need to wait until some drivers are feeling ready on your machine to begin to get things done?
Or are you a perfectionist and tend to optimize your drawings before you even finish to insert all of your ideas into the software?
The dirt factor
Are you tired of people discussing designs at your workplace and constantly pointing at your monitor, leaving blurs and fingerprints on the surface?
The cost/eco factor
I use already printed paper left from the printer's ramblings and unwished sheets to draw on (containing no confidential information, of course!). First, they'd go to the bin anyway, since they're unusable for anything else having a longer life. Second, I like to draw only on one side, so I can compare the pages directly without having to flip them. Third, the sheet's way leads to the trash can after I'm done and if I have moved on to a digital prototype.
The interaction factor
I have noticed that an informal drawing on paper rather invites people to interact with. It is possible to touch it, to write on it without compromising its holiness (as if digital was "carved in stone"). People can add modifications and notes without feeling guilty or the author of the prototype feeling hurt.
The distraction factor
PowerPoint presentations ideally should look nice. Your paper prototype has to be useful.
The upgrade factor
For some reason I like to believe it's easier to take a paper drawing to the next level if needed (e.g. to scan it or to redraw it in a drawing software) than to really start over with a document that's already digitalized. Applying Agile, I don't need to beautify every concept I may produce - only the one or two which will be relevant for future work.
The reminder factor
I almost never forget what I thought and wanted to tell the stakeholders when I'm showing a concept I've drawn myself. Somehow, the same concept, digitalized and maybe even printed aftwards, doesn't support this.