Paper prototyping is a widely used technique in UX design.
There is a well known book about it (http://www.paperprototyping.com/), an article on A List Apart (http://www.alistapart.com/articles/paperprototyping/), and one by (gasp) Jakob Nielsen (http://www.useit.com/alertbox/20030414.html). The Nielsen Norman Group uses it (http://www.nngroup.com/reports/prototyping/video_stills.html), and it's taught in many (most?) UX design courses.
No matter how comfortable you are with your digital tool of choice, nothing is quite as immediate as moving bits of paper around, especially in a collaborative environment. Plus it has the added advantage that you can test paper prototypes with users without them mistaking it for the final thing.
As for the kit itself, I think the idea is cute, and the price is reasonable. It's not much more than the cost of the paper itself.