I assume the material in the rear wheel wells is there for sound. Am I correct?

 

You got it! You find the same stuff in the rear wheel well of tour buses also. A nice touch which only needs a quick shot of the hose to clean out each time you wash your car.

dsc888

 

Yes, it does dampen the sound of water, etc. thrown up from the wheels. The only drawback that I have found is that water will be retained in the fibers longer than usual and you will find puddles behind the wheels in your garage. Small price to pay, though.