A wrapped token is a derivative of a coin or token that is located on a blockchain other than the original asset. Since blockchains are separate networks, they do not communicate easily, making it difficult to move one cryptocurrency for another. This is not a problem on the same chain but moving to another impossible.
Here is where a wrapped token enters. With Bitcoin, only that coin is on the ledger and in the wallets. To engage with Bitcoin on Ethereum, as an example, the coin needs to be wrapped. Hence we have wrapped Bitcoin.
Wrapped tokens solve the problem of incompatibility. Technically one is swapping the original coin (token) for the wrapped one. This is done through the use of smart contract. Everything else remains the same including the divisibility of the asset. The new chain's wallet system allows users to send, receive, and store the money.