That's a very interesting question. But before we answer that let me ask - do you think, that humans are any less hairy than a chimpanzee? At first glance you might say, yes. But, what if I told you that truth is deeper than what meets the eye. Maybe, if we know what exactly changed during evolution that makes us look naked compared to our cousins, maybe then, we will understand the answer better.
Scanning electron micrograph of skin showing structure of hair
Taken by 
The emperor has transparent clothes
Notice the hard to notice vellus hair on skin
*Image by Svdmolen | CC BY-SA 3.0
Image showing the difference between vellus and terminal hair. And, how some vellus hair differentiate to terminal hair by actions of androgens (such as during onset of puberty)
Image by Kubek15/Slave | CC BY-SA 4.0
I want you to look at the top of your arm and then the lower side. If you are a hairy man, look at your chest and then look at your back. You will say that your back is relatively hairless and so is your lower arm. Now look at that chimpanzee out there and look at yourself. Do you feel naked? But let me assure you that you are not.
When you look close enough under a microscope you will see that there are two kinds of hair on your body. There are terminal hair. These are the thick, long and ones that you can see with your naked eye. Then, there are vellus hair. These are tiny, thin, pigmentless, almost transparent and hard to notice. With terminal and vellus hair combined, we have similar density of hair on our body as a chimpanzee - about 60 hair/cm2 (Yesudian, 2011). In fact, we seem to have more vellus hair than any other known mammal. So it is not like we lost hair or we became hairless. It's more of a case of shift in type of hair which dominates in our skin. But why? Hold that sort for a second. Because, it turns out that we may not have less hair compared to a chimpanzee, but both us and our primate cousins have less hair compared to other mammals. That holds true even when body size is taken into account (Sandel, 2013).
So there are two evolutionary events here. One that we may share with our common ancestor with other apes - initial loss of hair density. The other is where we became naked by choosing to keep more hair in vellus state. So why it happened, the way it did?
Evolution of human fur
Now, I don't have a time machine to go back in time and collect samples to give you a definitive answer. However, what we can do is look at what functions do hair serve. What were these apes and humans doing that losing hair could have been adaptive?
It's getting hot in here, so take off all your fur!
Humans sweat a lot! Seriously!
Image by BarbaraBonanno | CC0
One of the most important role served by hair is thermoregulation. That is it saves you from losing excess heat in cold, and it also keeps off heat from getting in during summers. But, what if the animal is doing a lot gymnastics around or running like a maniac and generating a lot of body heat from within. Well, one way could be to stop for a while, pant and blow off some heat before another sprint. But if you were a primate, jumping from tree to tree for long duration, and if stopping and panting isn't your thing, then keeping the heat generated inside the body, doesn't sound like the best idea. So, what might have happened is that those who a had a little less fur had an edge not just in jumping from tree to tree marathon but also in having some bipedaility. Well being bipedal would generate some more heat than moving on all fours. Since being bipedal was an advantage for our ancestors so was shedding some hair.
When it came to running long marathons in hot savanna shedding the thick fur of terminal hair became yet more adaptive. Those who had less terminal hair were better at running longer distances. They blew off heat by sweating more and providing open surface for sweat to evaporate faster. In fact more than a million years ago we had a drastic increase in density of eccrine sweat glands and reduction in terminal hair (Kamberov et al., 2018).
But did we lose the hair first or did we became bipedal first? That is a hotly debated topic. However if you agree with Ruxton and Winkinson, 2011, model, then it was the hair loss that came first. According to this model only those human ancestors who had lost most of their terminal hair fur were better at being bipedal.
But, doesn't this make you wonder that why didn't we just lose all hair? And more importantly why did we keep vellus hair? Well, one reason for keeping vellus hair might be that they don't shade your skin. A sweat drop on small vellus hair might be like head on the spike, offering to air. They may offer sweat droplets to air on their surface, enabling more surface for evaporation of sweat (See this article. But, that's not where story ends. Because, hair have other functions other than thermoregulation, like keeping the bugs off.
I can feel your feet, on my hairy sheet!
Though hair is made of dead cells, but its motion still aids our tactile senses. What Dean and Siva-Jothy, showed in 2011 is that especially vellus hair plays a vital role in detection of bugs roaming on the skin. It does so by both making it difficult for parasite to move around and by enhancing sensation of bug moving around. So, you have higher chances of noticing the bug in a jungle of this fine hair, as compared to a shaven area. As, for the long, thick terminal hair - they may help, but they may also help the bug to hide. So, reducing the terminal, plus detecting bugs with the fine hair, may help reduce the load of ectoparasites. The vellus hair don't come in the way of our bipedality, they help in sweating effectively, plus they keep the bugs off. Looks like, it doesn't hurt to have them around.
Show off that skin!
But, if you can see bugs easily, if you can see rashes and infection easily, so can others on your skin. So, if there are no bug bites on your body, no rashes, no bacterial and fungal infection; won't it also signal good health, a good immune system. Turns out, that skin health is one of the strong predictor of how attractive you are (Jones et al., 2004). Then we live in this social, and damp habitats under roofs. Where transmission of parasite is a high possibility, just like in naked mole rats. So it is plausible that along with thermoregulation we lost fur to reduce the parasite load. But, because healthy skin is attractive, a naked hairless skin also gave group members a good confirmation that you ain't house for parasites. You clean skin is socially accepted. In which case the loss of hair might have been accelerated by social and sexual selection.
Another point in support of sexual selection is retention of fur in private, pubic regions, but not on regions visible to others. Also, it appears that the sexual selection for loss of hair was bit gender biased. As women seem to have lost more fur than men (Pagel and Bodmer, 2003).
The intimacy of naked skin
Giles, 2010, provides yet another interesting hypothesis in this arena. Their hypothesis is not just about showing off skin, but about the intimacy of skin to skin contact. According to this hypothesis, since bipedals lost their ability to hold onto their mother's fur, their was no need for thick fur coat. Moreover, skin to skin contact was a new way for mother-child intimacy. Moreover, just like hypothesis of why you tilt your heads when you kiss - because you tilted your head when you were breast fed - this hypothesis extends into romantic love. Well, because a hairless sexual partner would make you feel equally cosy as you did in your mother's lap. Once again dwelling into arena of sexual selection.
Summary
As an ending note, I would like to metion - that while one may see all these different explanations as mutually exclusive, there is no reason for it to be so. The loss of hair might have initiated for better thermoregulation in a common primate ancestor; it would have been further selected by high heat generation in bipedal hominids bodies. The fact that it decreases parasite load might have aided in social settings we live in. And there is no reason to rule out why sexual selection could not have accelerated it. I hope to see some further interesting discussion on it in comment section.
References
Yesudian P. Human hair - an evolutionary relic?. Int J Trichology. 2011;3(2):69.
Dean and Siva-Jothy, 2011. Human fine body hair enhances ectoparasite detection.
A naked ape would have fewer parasites. Pagel and Bodmer, 2003.
Giles, 2010. Naked Love: The Evolution of Human Hairlessness
StemQ Notice: This post was originally submitted on StemQ.io, a Q&A application for STEM subjects powered by the Steem blockchain.