From Steve Higgins at OmniBrain:
Everyone thinks the printing press led to increased literacy among the average man in the middle ages, but that just might not be the case. Dr Marco Mostert a historian from Utrecht University is instead suggesting that the availability of cheap paper was the main reason more reading material became available. While this isn't surprising the source of the new cheap paper is. It seems that, according to Dr. Mostert,
"These rags came from discarded clothes, which cost much less than the very expensive parchment which was previously used for books. In the 13th century, so it is thought, as more people moved into urban centres, the use of underwear increased --which caused an increase in the number of rags available for paper-making."