Who ya' callin' Towheaded?"

From Yahoo Answers:

In colonial times, families grew their own flax to make into fabric for clothing. Transforming the flax into thread was a complicated, involved process with many time-consuming steps. After the flax was harvested, it was soaked in water for several days to soften it so the inner fibers could be removed from the stalk. To separate the long, thin fibers from the shorter, coarser ones, the flax was pulled through a bed of nails or combed in a process called "towing." The shorter fibers that were extricated were of a lesser quality and were called "tow." This led to the term "towheads" to describe people, particularly children, whose hair resembled these strands.

Our favorite online dictionary, MerriamWebster.com, provided further support and evidence for this explanation. The definition for towhead reads: 

Pronunciation: 'tO-"hed (noun) 

Date: 1829 

a head of hair resembling tow especially in being flaxen or tousled; also: a person having such a head of hair

 The dictionary dates "tow" to the 14th century and states that its origin is "Middle English, from Old English tow-spinning."