I think generally people do dry themselves with a towel.
However, fungal infections flourish in damp environments and it is easier to dry yourself properly with talc.
Obviously people used to powder baby's bottoms to prevent nappy rash. Advances in nappy tecnology (reusable and disposable) mean that is no longer such a problem.
As far as I know gymnasts, climbers and weight lifters still put powder (although I don't think it's talc) on their hands to prevent sweating.
I also use flour on my hands when I make bread to absorb moisture from the dough.
There is nothing particularly sinister about using powder to absorb moisture. Odd to use it inside your body, but there doesn't seem to be much evidence on this thread of that kind of use.