Insulation improves the thermal efficiency of a building by reducing the heat loss through the building fabric. The amount of heat lost is determined by the thermal resistance of the elements of the building. The better the insulation, the slower heat is lost  and the lower the amount of energy used to heat (or cool) the building.
Insulation and draught proofing are probably the two most useful and cost efficient energy saving measures.

Green insulation materials address concerns about the harmful effects of more traditional insulation materials such as glass fibre quilt. click here for more information