We do still have a fine layer of hair all over our body – it is just much finer. There are several theories as to why we lost our hair, one of the most popular is that it helped us to to keep cooler once we had moved out of the jungle and on the the African savannah.
Another, more controversial theory, is that humans went through a phase where we lived mainly in water, and so lost our hair to make us more streamline. This could also explain how our fingers are slightly ‘webbed’
Another interesting questions is why did we keep the hair on our heads, and why does it grow so long? Again, nobody is really sure, although it could be to protect our heads from the sun.