At the base of every hair follicle in your body are tiny muscles known arectores pilorum.
When you are cold, or frightened, or otherwise aroused the muscles contract and make your skin look like a plucked turkey.
This reaction, known as the pilomotor reflex, is caused by a surge of adrenaline. Even thinking about an emotive event that happened in the past - or might happen in the future - can be enough to trigger this response. Go on take a moment to try it.
In our hairy ancestors - and our fluffy or feathered cousins - this reflex has a practical use. It traps air in the fur or plumage when they are cold and makes them look bigger when threatened.
In humans it is one of many examples of a vestigial feature. Our body hair is so puny that it no longer serves any use but there is insufficient selection pressure for it to disappear.
On the other hand it does give you a clue if somebody is cold, scared or sexually aroused. It's usually safer to assume it's one of the first two options.