According to Osho, his towel carries no mystical significance; it began as a practical weapon against Jabalpur’s relentless mosquitoes so he could sit and meditate. Over time, people projected esoteric theories onto it, turning a once-useful item into mere superstition he kept for others’ minds. Having decided to drop it, he uses the story to teach non-attachment: abandon symbols and habits when their purpose ends, and don’t cling to borrowed meanings.
It was just a bug-swatting towel, not magic—use things when needed, then let them go and don’t make up special meanings.