The story goes that a school teacher in Ashland, OH gave his students individual squares of paper so that the single towel in the lavatory would spread their germs. Then the CEO of Scott Paper Towels heard about this, and tried to sell a load of toilet paper, that had accidentally been made too thick, as paper towels. This also lead to the invention of Sani-towels, which I believe are the predecessor to Kleenex.

Also, paper towels are called yumyum towels or ea-z rolls in the UK.

Source: Wiki while researching paper towel brands for a comment on the Vince/ShamWow! imitator post.