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[MidTowner]

It's the reverse - a serviette is made of cloth and napkins are made of paper.  My understanding is that "serviette" in considered antiquated in the UK and was always associated with the lower classes.  It is one of our holdovers from the colonial era.

Perhaps we should open a new thread on "English as spoken in Waterloo Region". 

I don't honestly think that the words are considered to refer to different objects by most people, but if there is a difference, 'serviette' refers to the paper variety. I have heard the same from Brits, that serviette was a 'working class' tell.