I am still trying to figure out what is role of the paste. What does it do?
According to Charles, the mix of soap and cutting balm is what "primes" the skin, wheras the role of the paste is to "buffer" the skin against the blade. So you could say the paste is what protects the skin. It has clay ingredients which dulls the blade as it cuts (my understanding, anyway).
Charles Roberts is the go to guy for your question. He'll tell you the long version including technical jargon or you may wish to read about the shaving paste online here. http://www.enchanteonline.com/pages/shaveculture/wetshaving.htm#Knowledge%20Base
And here. http://www.hydrolast.com/shaving/index.php
I use Hydrolast Shaving Pastes which are custom blended to suit your skin/beard type. I use both the #2 or medium velocity paste and the slower #1. These both help further smoothing my shaved skin by providing a buffering layer between the blade and my body parts - This can be very, very important for us wet shavers.
I encourage you to invest in the starter kit http://www.enchanteonline.com/pages/shaveculture/hydrolast/hydrolast.htm and ask for free samples. For $24 you'll be very pleased with not only the smoothness of your shaves but also the way your face feels after each morning's ritual!
Could you or anyone else talk about the different kind of protection offered by paste vs cutting balm? I'm trying to tweak my mix a bit right now. I actually did ask this of Charles, but didn't really get much of an answer.