Question

Birds have been observed puffing

Answer 1

It's an important part of the bird's ability to maintain its body temperature. 
Air is a poor conductor of heat, so the air trapped among the feathers
prevents the loss of heat in cold atmosphere, and prevents overheating
in hot atmosphere.  Much like our wearing several layers of clothing.  

Answer 2

the air pockets help the bird keep its body heat in its feathers keeping it warm.