This article is from the WineMaking FAQ, by malak@CAM.ORG (Don Buchan) with numerous contributions by others.
In 'fino' sherry Flor Yeast forms a floating film on the surface of the
wine. It protects the wine from oxidation, as well as imparting special
flavours. Alcohol levels, though, must be 14 to 16%. Below 14% vinegar
bacteria can take over. Above 16% yeast cells will die and this would
then become 'oloroso' style sherry.
Because the yeast uses a lot of alcohol, the produced water would
acetify in contact with stainless steel tanks. In wooden barrels, there
is enough evaporation that counters the drop in alcohol, therefore
producing the Sherry flavour.