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It was something that was decided several years ago. I know about it because I was on the ABA committee that worked on the language for it. It was published in the Quarterly sometime in '07 or '08 I think. I'm pretty sure it's both ABA and APA, but know for sure it's an ABA regulation.
Not a lot of shows enforce it, but if there's a picky judge, they'll make you take them down. Part of the reasoning is that there are some exhibitors who will do things to make their birds stand out, to let the judge know which birds are theirs (everything from custom legbands with their names on them, to marking their water cups with their farm names, to dressing up their cages with fabric!)
Bottom line, the judge should not be distracted from the birds themselves. And a judge needs to be able to compare other birds within a class (say all the Silkies for BB, for example) and it's harder to do that if there are all these cardboard dividers breaking things up as they look down the cage row.
IMO, we want to help the judges, not hinder them from doing their job. So I felt it was a good idea (although I didn't dream it up, the rule came about due to a number of complaints that were made over the space of several years.) I always bring sheets of acetate with me to shows, and bulldog clips. I'd rather use plastic anyway, easier to store rolled up, and wipe clean later.