I'm no expert, but it could be to do with friction - hair on arms and legs have friction of cloting - and few people have hairy kneecaps or elbows, which are the places which experience most friction. Just an idea.
Humans have evolved to grow hair of different lengths on different parts of the body. Each hair will eventually stop growing, and a new hair will start up on the site of the old one. The old one then falls out. With head hair, it can reach over three feet long before this happens. See http://www.straightdope.com/classics/a3_044a.html