I think that swaddling is a great thing for new babies. I often find that swaddling helps babies to settle. It can also help a baby to sleep longer at night. Swaddling disrupts the moro reflex. We often refer to this reflex as the startle reflex, you know, that one where the baby throws his arms out as if surprised. Babies can be soundly asleep then have this reflex and wake themselves. The moro reflex tends to happen most often when babies are on their back (where we are all taught it is safest to put them to sleep). I have heard that the reflex causes their bodies to release cortisol (the stress hormone). This could explain why the reflex seems to upset some babies and disrupt their sleep patterns.
When a baby is swaddled with even one elbow against their body, they do not show this reflex. Once they go to sleep they tend to stay settled longer. In addition to shutting of the moro reflex, swaddling just seems to make some babies more comfortable. Newborns have spent months in tight confines in mom's belly. It is what they are used to. Some babies do not care for the process of being wrapped. I have found that if they are wrapped securly, where they can not move their elbow away from their side, they adjust to the swaddle well.
Swaddling seems to work for most babies during the first three to four months of life. At about four months babies seem to lose the need to be swaddled.