We're often slaves of our computers. Sitting at the desktop all day makes your mind work within the paradigm of a rectangle with information of a certain size that you can manipulate with an attached keyboard and a pointing device. The iPhone was a surprise to most people because they spent their day in different interaction paradigms. By spending you time in a single paradigm, you stop seeing it, it becomes your world.
There are these two young fish swimming along, and they happen to meet an older fish swimming the other way, who nods at them and says, "Morning, boys, how's the water?" And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes, "What the hell is water?"
When you design software it is good to get away from the desk and do physical prototyping. So you have this beautiful design from a capable UI designer. All mocked up in a series of screen shots. But how is it going to interact?
Print out the designs and cut them up like we did on the eTrading Pro project and have a conversation with your Sponsor User or engaged stakeholder about how the pieces would interact. It allows everyone to play(tends to foster better decisions) and reach a consensus by working it out in the real world rather than in their imagination.
It was easy to discuss animation of cards appearing and disappearing, if it should be an accordion or merely collapsing panels. You can even tear up windows and stick them together differently or draw on them to suggest changes. Some interactions are difficult to simulate with paper, but that might hint that it will feel unnatural to the user.
If Smartphones are an important use case(it will be for anything consumer) then Paper is a great start.
Drawing by hand you think differently. For many people working at PC is better for refining an existing idea. Starting from a blank slate is hard. Doing it in one window among many others is harder. On paper you clear you desk and pull out a single blank sheet. Nothing to distract from what is being created. And when your sketch is done, no stakeholder will mistake it for the finished product, it comes across as a humble idea, which tends to enable discussion.
Sometimes a whiteboard is better than paper. If you have a lot of whiteboard space you can leave the sketch for weeks. If you have limited surface, paper is probably preferable.
In Poland we started out with a common table UI, but felt that there might be a better option. By going to the whiteboard for a discussion about what content we were actually presenting we sketched out a nested list format that would present the content well on small and large screens alike. Tables in contrast are inflexible to significant variation in screen width.