Many people are surprised when I tell them that they lose muscle while exercising. During exercise you incur micro tears in the muscle fibers. Exercise can become detrimental when the stress placed on the body heavily out weighs the amount of recovery needed to continue training in that manner, this is often referred to as "overtraining". Common sense tells us that if we keep tearing something down then it cannot grow. The actual growth of a muscle occurs while you're recovering in the coming days of rest and eating. A crazy question I often ask trainees is, "if a child from a 'feed the children' commercial were to workout do you think they would make any muscle gains?" Obvious answer is no, you need to eat to grow.
Overtraining also impacts people looking to tone up. I see folks killing themselves in the gym, working out 4-6 days per week 1-2 hours per day but not making much progress. The issue is that even if you are losing weight you are also losing muscle if you aren't eating to support that activity. Thus, leaving you looking like a smaller version of your former self and in more extreme cases looking skinny-fat (think marathon runner). Also, your central nervous system (CNS) needs time to recuperate in order to make strength gains. These strength gains will allow you to push more weight for more reps thus increasing intensity and time under tension leading to muscle hypertrophy when your eating is on par. Muscle is the key to achieving a toned look. Muscle is the key to achieving a buff look. When it comes to aesthetics period, muscle is key.