The fiber-optic-looking filaments are waxy secretions that may protect the insects by disguising them as bits of plant fiber or fungi from above. And/or, perhaps the waxy coating may help them not get gummed up in their own sugary "honeydew," which these insects excrete almost constantly as they drink plant juices. (Malaysian Borneo)
Fuzzy caterpillars can be unwise to touch because they often possess stinging hairs and/or spines. This caterpillar's appearance is an example of aposematic coloration, meaning bright colors or patterns which warn that an animal is armed with venom, toxic to eat, or otherwise distasteful. In this case, when I lightly blew on the caterpillar, the patch of red-orange hairs puffed up, and many of the tiny hairs came loose - no doubt a predator would regret breathing in these hairs or getting them in its eyes.
