I have heard about WPI for some time, but never understood how to use it until the other day. I knew it was "wraps per inch" but didn't know what they were actually measuring. In a book the other day I read an explanation that made sense at last. :-) You are measuring the number of little widths of the yarn in question that will sit next to each other comfortably in an inch. It doesn't matter really what you wrap them around (this I didn't get before), it can be a ruler, or a pencil or anything you can wrap the yarn around. Wrap the yarn around something and then you measure how many little strands of yarn sit next to each other over one inch of the length of the ruler or pencil or whatever you used to wrap the yarn around.
It has to do with telling you the weight of yarn. There are charts that lay out the information, like if you get X number of wraps around something in an inch your yarn is X weight (sport, worsted or whatever). This can help you determine what weight an unmarked yarn is.