Is this a puncture protection thing? I got a vintage bike to commute with (I wanted a heavy one for the exercise) and I was hoping for a flat so I would have an excuse to spend money on a puncture resistant street tire to replace the knobby tire.

After more than a year of hoping for a flat, I got one. While inspecting it I noticed I had two small pieces of glass in the knobs, but the flat turned out to be on the valve neck. 

Also, when I took the old tube out, it had what I guess is a Kevlar layer protecting it. I'm not really sure what it is; it is just a brown layer on top of the tube.





It is "glued" to the tube thanks to the amount of time they were together, but it peels off easily. Also, you can see the flat where the valve meets the tube on last pic.

If it is a puncture protection, I must say it was doing a very good job. And I will probably buy regular cheap slick tires and reuse that and be happy with not wasting expensive material every time the rubber wears out. In fact I will continue wondering why tire manufacturers even insert that layer on the tires at all! Unless someone with more knowledge here has an argument against that layer and in favor of modern puncture resistant tires.
That is a tire liner. 

I think http://sheldonbrown.com/flats.html is good reading on the topic of liners / flats in general - in particular, he generally doesn't recommend them (and I don't either). He also claims that if they're improperly installed, they can increase the frequency of flats. If you are prone to flats and you've eliminated improper installation, maintenance and riding (pinching the tube, improper inflation, bad rim tape, going down curbs the wrong way, etc.) - by this, I mean the environment forces the flats (such as certain types of thorns, etc.), you may want to invest in a tire with additional puncture protection (like the Bontrager hard-case tires) which eliminates the improper installation issue or thornproof tubes (these are thicker tubes, so thorns only go in partway, and you can pluck them out of the tires), but these all add unnecessary weight (and a bit of expense, and often some more noise) for most people (i.e. people who live outside areas such road hazards exist in reasonable frequency). Otherwise, just get a normal tire and tube and maintain it properly (install rim tape properly, inflate properly). And you should always have a patch kit on hand anyway (and/or a way to get home).

There are also products like Slime - a sealant that goes in your tube and is supposed to patch up punctures. Some mountain bikers swear by it, I think it just causes a mess.