The caterpillar in your photo is the banded tussock moth, Scientific name: Halysidota tessellaris, Family Erebidae, subfamily Arctiinae (tiger moths). The 'banded' part of the name comes from bands on the wings of the adult moth, with the 'tussock' part of the name referring to the clusters of setae or hairs on the caterpillar. The color of the hairs on the caterpillar range from tan to gray, with longer 'pencils' of black and white hairs at the front and back ends. These long hair pencils are easily broken off, and in your photo the rear ones are missing. It may be that predators bite at these thinking they are legs, which diverts the attack from the main body. However, the patches of hairs on the body may themselves be irritating and give the caterpillar additional protection. The caterpillars feed on many types of woody shrubs and trees, but are never abundant enough to cause significant damage or to become a pest. I have included links below to websites with more information and photos of this caterpillar and the adult moth.

https://en.wikipedia.org/wiki/Halysidota_tessellaris

http://bugguide.net/node/view/541