Cloth nappies are soft and breathable. They are used with a stay-dry inner layer and a soft breathable outer wrap.
Shaped nappies and wraps are elasticated at the waist and legs, providing protection against leakage. With a good cloth nappy, you should have few or no leaks. Boosters can be used to give added absorbency when needed (for example at night or with an older baby).
Using cloth gives you more control over the chemical environment next to your child's delicate skin.
Cloth nappies provide good protection for active toddlers. As your child learns to walk, they may take a few tumbles, but a cloth nappy will provide a comfortable padded layer protecting your baby's spine. The extra padding provided by a cloth nappy also makes it akin to the 'double nappies' recommended by paediatricians for use on babies with dislocated hips because of the way they help keep the leg in the right position to stop it dislocating, so allowing normal growth of the cartilage of the socket.†
Many people believe that disposable nappies help prevent nappy rash. But independent research conducted at the University of Bristol has found that as long as it is changed frequently, the type of nappy worn is not a significant factor in causing nappy rash.‡
Notes
† See http://www.thenappylady.co.uk/Information/Article.asp?ArticleID=2 and http://www.bbc.co.uk/health/ask_doctor/hip_dislocation.shtml
‡ Philipp R, et al, "Getting to the bottom of nappy rash", British Journal of General Practice, 47: 493-497, August 1997. Read abstract in Pubmed.