There are actually many reasons why cats may knead their paws. One of the most common reasons for kneading is the cat is trying to make a comfortable place to sleep. They also knead to show love, or when doing something as simple as stretching.
A common example of a cat showing love or affection is when it begins kneading while being petted or while in the owner's lap. Cats will also begin to knead as kittens in order to stimulate milk production in their mothers, and continue doing so throughout their lives because they feel that it is necessary.