Balled up, it makes a fun toy… but tear off a sheet of it off of the dispenser, and it’s the “end of the world!”… they litterally flee and hide when I do that.
Any Ideas as to why?
Regards
FML
Loud noises = bad.
Take a plastic bag and flap it around at them. They’ll run from that, too. In fact, one of my kitties has a neuroses about plastic bags ever since she tried to crawl through one’s handle. She got her head and front paws through, but then something startled her and she started to bolt. That’s when she realised there was a PLASTIC BAG MONSTER CHASING HER! So she ran harder – but she couldn’t shake it, because it was still right on her tail. Literally, right there, on her tail. Back and forth across the entire place she ran, manically zig-zagging to and fro trying to escape the gaping maw of the horrible polyethylene creature. Eventually it slipped off during a particularly aggressive lope, but she was traumatized for life.
Putting aluminum foil on things is a good way to train cats not to go there (such as on the couch). I’m pretty sure Minefield is correct that it is the sound they don’t like.
What Mindfield said, plus:
Loud noises involving metal = extra-super bad. May involve a veterinarian, scary motorized equipment, or a vacuum cleaner.
my little boy is terrified of plastic bags and vaccum cleaners.
cleaning day around here is pretty traumatic for him. 
A friend and I tried this as a kitten deterrent in October because her foster kittens kept diving off a staircase and onto the grandfather clock. Turns out tinfoil was the best toy ever! They weren’t bothered by the noise in the least and once we gave up and put the foil aside some would crawl under it while the others attacked. They thought it was great.
My grandmother once literally scared the shit out of a cat just by snapping a plastic trash bag open.
None of my cats have any fear of foil. One of the three has “bag-fear”, any noise from a plastic bag sends him running…the other two could give a shit. However, when I flap the bag to put in the trashcan, they all vacate the area. I think it’s the noise that sets them off. If I just softly ruffle the bag, they don’t seem to mind at all. All three share the horror of the vaccum cleaner, they bolt at the sight of it coming out of the closet.
Yeah my cat is afraid of bags too. Like a little kid is afraid of a pile of leaves in autumn.
-foxy
Hahaha. That is exactly what happened to one of my cats too. It was quite an ordeal for me to try to catch her as she was galloping in sheer terror all over my living room. Ah, cats can sure liven things up at times. 
One of our cats, who I readily admit is a nutcase, actually loves vacuum cleaners. The tank type one use to clean up the scattered litter fascinates him. I can take the end off and put the tube right on his side. It sucks the skin in, and he thinks that is a riot. Can vacuum him from head to toe and begs for more. Go figure.
My theory is that waving a sheet of aluminum foil in the vicinity of a cat blocks the transmission of the alien rays that are being beamed into the cat by the feline mothership. When the cat experiences an interruption in the signal, this disorients and alarms the cat, much as some humans become disoriented and alarmed when the TV is on the fritz and they have to think for themselves.