I accidently discovered the benefits of writing code on pencil and paper some years ago when I was looking for a career change. I picked up a C book that had exercises in it but only had time to go through the book during my commute on the metro. Because I worked in a SCIF I couldn't take any electronics with me to work. So I would read a section the night before, go to bed, and churn out the lab solutions in a notebook on the metro. At the time I thought these circumstances were slowing my progress. Once my circumstances changed and I had the time to do everything with two monitors and every IDE on the internet, I was bogged down.
I am not a developer, but occassionally need to write code. I always go to the paper first now.
When I was a student I identified the keyboard as one of my greatest impediments to good programming. Something about being in front of one before doing the 'real' work of thinking through the problem was just too tempting, and I'd ignore the problem solving and just start typing.
Terse languages like J and K also make good candidates for writing code using pen and paper. Hillel Wayne has an interesting blog post detailing the very same note.
I am not a developer, but occassionally need to write code. I always go to the paper first now.