I fold my undies so they'll fit in the drawer better--they're flat, so the drawer will close. And they take up less space, so I can cram more underwear in there. That's the reason I've always told my kids.
Folding clothes is a great example of how I try to teach my kids that there are *practical* reasons for the stuff we do. There's nothing morally superior about one way of folding stuff than another--there's no one "right" way. There's just "the way that accomplishes a specific goal" (like, fitting in the drawer, not getting wrinkled, etc.)
My DH would try to fold his shirts in thirds, the way they come in the package. And he couldn't do it neatly--they were always just kind of "flumped" there. So I taught him to fold them in half down the middle, because then he'd actually get them flat. Yes, even his polo shirts, with the collars.
My MIL told me, "That's now how you fold those shirts, you have to fold them in thirds." I told her, "Sez who? There's no law, you know, and if it gets them flat and in the drawer, it doesn't matter." She started up again, and I said, "In your house, feel free to fold them however you like. In my house, we fold them in half." She dropped it. But I think she still thinks I fold them wrong.