The dry shake is a very good way to get small flies to float without adding weight and goo. The following is a link to fly fish USA and the shake is called Shimazaki Dry Shake. Dry Fly Floatant
There are a few different brands and I have not seen a huge difference in any of them.
My opinion on the woolly buggers is that they mimic a few different things to some extent, such as, leaches and small prey fish. The real reason I believe would be more territorial or instinctive, attack foreign objects that intrude upon their world.