Cowboys wore vests long before bikes were invented. A jacket would have made more sense as well, but actually a vest does help keep you warm while not restricting your arm movement. The vest helps keep your core temperature up, which allows your body to divert blood flow to your extremities, keeping them warm.

As far as bikers go, if you've ever done any long distance cold weather riding (as in winter, below freezing temps), you know that wearing layers is necessary for keeping warm. When you get very many layers on that have sleeves, it's very difficult to bend your elbows, which makes your shoulders ache.