Body fat: What happens to lost fat?
To understand the answer, it helps to remember that fat is basically stored energy. Your body converts fat to usable energy for your muscles and other tissues through a series of complex metabolic processes. This causes your fat cells to shrink.
These metabolic activities also generate heat, which helps maintain your body temperature, and waste products. These waste products — water and carbon dioxide — are excreted in your urine and sweat or exhaled from your lungs.