Interestingly, leather gloves are what I associate my absolute worst hand blisters with.

I guess I don't disagree with Dave's main point -- that it provides a layer that moves with the skin -- but I've always figured that wicking sweat away from the contact surface (keeping it as dry as possible) was the real key. I hardly ever ride in bike shorts anymore, preferring a pair of merino boxer briefs under lightweight gym shorts. The merino undies are amazing at wicking moisture from one point to all surrounding points to evaporate away, and I can ride pretty much indefinitely without fear of sores. I've always attributed it to that.