The foreskin of the penis protects the glans of the penis from injury. Damage to the glans of the penis has the potential to affect sexual functioning, whereas damage to the foreskin is less likely to have that affect. Thus, if you look at it from an evolutionary standpoint, animals with a good protective foreskin were more likely to be able to succesfully breed in the event of some sort of damage to the penis. Most mammals have some sort of foreskin - in fact, in many mammals, most of the penis is internal unless it is erect.
It probably evolved when we spent a fair bit of time on all fours, to protect the head of the penis (which dangles down in an all fours position) from damage, but given that along with developing the ability to walk upright, we also started wearing clothes, including underwear, it still has a role in protection of the head of the penis against rubbing and chafing. Having said that, though, I think that is is very difficult to make generalisations on how circumcision affects the sensitivity of the glans of the penis in terms of sexual function, unless you can find a few thousand men willing to be circumcised and do surveys on how sensitive their penises are during sex beforehand and afterwards.
Several thousand volunteers to be circumcised for research? Hands up?

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