The paper that we use daily did not originate with the manufacture of papyrus in ancient Egypt nor with parchment made from animal hides. It was first invented in China in the second century AD and from there "spread slowly to the west via Samarkand and Baghdad." These cities were pivotal as part of the great Silk Road, which passed overland through the heart of Asia, through Sinkiang and and the Dzungarian Gate, down through Turkestan and eastern Iran, whence it split in two. The northern route reached to ports upon the Caspian Sea, and from there overland to the Black Sea or into the heart of Russia through Astrakhan on the mouth of the Volga. The southern route passed through Baghdad and from there to Alexandretta on the Mediterranean.
All the cultures along these routes benefited as they were reached by the technology of cheap paper, supplanting the much more expensive parchment which was made from animal hides. Paper, more than wealth or conquest, served to raise power for those kingdoms along the Silk Road, as widespread knowledge applied as education made for a more capable, cultured and obedient civilization. Widespread and available paper ensured one set of laws, one set of beliefs, an accurate tallying of money and thus taxes and the education of an elite populace. Prior to the eleventh century in the mid-east, and the 15th century in Europe, the expense of paper considerably limited its use to those isolated social constructs who could make their own paper, or who could afford to pay for it. Every monastery full of books was filled with sheep from which the manuscript pages could be made. There was no reason to teach reading to even small numbers of persons for whom no books could be provided.
It is not generally understood that prior to the invention of the printing press (which is another post), the margin for available paper in Europe is a narrow one indeed - perhaps only 50 to 70 years. A printing press invented in the 11th century would have been no good to anyone, since the expense of parchment would have precluded the proliferation of books. We don't know who might have had the idea for a press prior to Gutenberg (the Koreans had invented something like it centuries earlier), but it would not have been exploited.
Paper can be made from any sort of fiber, but prior to the 19th century is was primarily made from cloth or those fibres from which cloth was made: cotton, hemp, sisal, kapok, wool and so on. Most of the time, since old clothes or other rags were as suitable for the manufacture of paper as new fibre, it was eminently practical to recycle torn or damaged articles, or from waste cuttings. The cloth would be cleaned with water and chemicals, pounded incessantly and eventually pressed to remove the water and make paper.
The 'rag man' was an institution in late medieval societies, as someone who collected old rags, paying for them by the pound, sorting out that which could be cleaned and distributed back to tailors, or which could be in turn sold to paper makers who tended to dwell in the country where water or wind power was available. A representation of a rag man (an increasingly poorer profession) can be seen in the 1951 film Scrooge, where the housekeeper, the laundress and the undertaker sell their loot to a rather scrupulous character people might take to be a pawn shop owner. All around them in the scene young children can be seen tearing apart rags while coughing - preparing the old cloth for paper, and suffering from the rags being full of typhus and other happy buggies.
Paper in the 16th century was an expensive commodity and highly in demand, and the raw material needed was considerable. It would be practical for D&D players to strip orcs of even moldy and rancid clothing, including broken pieces and strips of leather, and sell it in town to the rag man for a profit. There would be no bits and pieces anywhere to be found on the floors of a dungeon, for even if it isn't worth its weight in gold, it would be worth nearly its weight in copper.
Of course, we live in a clean world where clothes are no longer used for paper, but wood. This was made possible by the hammering machines of the technological revolution, the development of certain chemicals, the ease with which trees could be chopped down and the scale of demand for paper as it grew in the 1900s.
To get a real sense for the value and usefulness of paper, trying playing D&D an evening without it, relying only upon your memory to keep track of everything - for every player, the DM included. It would be impractical - or, at the very least, extraordinarily difficult.
And yet consider, if your world takes place prior to Europe in the 1400s, virtually every bit of knowledge possessed by most people was exploited without having any book to turn to. People would live their entire lives and see only one book - the priest's copy of the bible, which was for them unreadable. Yet it didn't seem to matter very much. They themselves, their lieges, their masters and even the occasional performers who drifted through their villages felt no need to have books in order to remember all the details about life they needed to know. They relied on memory, which was stronger for them than it is for us. We've been weakened by our dependence on books.
And strengthened, too. But that is for the discussion on Printing Presses, when that time comes.