Toph asked me a couple of days ago why we itch. For many years I have had a theory about this, which I'm not sure is correct but which seems pretty good.
The theory is that itching is your body warning you that there might be an insect on you. When you skin detects a particular kind of light stimulation, you perceive it as itching. And then your automatic, unconscious response, even when sleeping, is to immediately reach over and scratch, which is just the kind of motion that is likely to dislodge the insect.
If course, itching can be caused even when there is no insect, by all sorts of other skin irritations, or even by nothing at all. That's okay. Like all detection systems, the insect-detection system is never going to be perfect. There always is a tradeoff between false positives and false negatives. You can have a system with high sensitivity that detects most insects but also raises a lot of false alarms, or a system with lower sensitivity that raises fewer alarms but when it does you can be more confident that they are real. The best adjustment trades off the costs of false positives and false negatives.
Apparently the itching system is tuned very sensitively: it wants to detect as many insects as possible, at the cost of also raising a lot of false alarms. This is just what we would expect. The cost of scratching at a false alarm is pretty close to zero, especially compared with the cost of letting insects eat your skin, suck your blood, or lay their eggs in you, all of which which can be fatal. Insect bites killed at least half a million people last year. Some people die from itching, but nothing like that many.
So: why does my face itch when I don't shave? Because the little hairs have gotten long enough to stimulate the insect-detection system. Similarly: Why do I itch after a haircut? Why do I itch when I wear a wool sweater? Same thing. Why do I itch when I have a skin rash? Because the insect-detection system in my skin is out of order.
Even seeing a lot of insects makes some people feel itchy all over and want to scratch. This is part of the same insect-defense system. When their brain sees a lot of insects around, it temporarily turns the sensitivity of the itch system even higher than usual.
(Or maybe this is totally obvious and everyone but me already knows this?)