There are two mechanisms that have been proposed to me.
1) Layering of Schwann cell membrane with conducting fluid between the layers is analogous to several capacitors in series. Since capacitance in series add by the reciprocal rule (as resistors do in parallel), this reduces the total capacitance.
2) The myelin increases the distance between the 'plates' of the capacitor. For parallel plate capacitors $ C = \epsilon A/d$ where d = distance between the plates. Thus increasing the distance reduces the capacitance.
Which of these explanations best applies to myelin, or is it in fact a mixture of both?