Should I eat the extra calories I earn every day?

I have been with MFP for a couple of weeks now and also I have a physical job and workout to an aerobics DVD when I find the time (Normally 2 to 4 times a week for approx half hour stretching and half hour aerobic/cardio). I am trying to lose a stone and have so far lost 4lb of that. I would like to lose as much as possible before I go on holiday in a fortnight (26th August) and then I dont mind how slow the remainder comes off after the holiday. MFP has given me a goal of 1200 calories per day. At the start I earned extra calories with work and exercise and was eating up to those extras but found the weight was not dropping. So, I decided to only eat up to or maybe a little over that 1200 calories and ignore the extras that I may have earned from exercise/work. Only one day I dont do this and thats a friday which is takeaway day and that can really increase the calorific intake. My question is this :- Should I be eating back ALL the calories that I burn off in a day or am I alright to just eat my 1200 until I reach my eventual goal. The reason it confuses me is that if I eat just 1200 and then burn 600 with exercise/work would this mean that the amount that I am actually retaining is only 600 and therefore too low for my body to function efficiently. I have not been feeling tired or ill while doing it this way. Please help me to resolve this confusion. Thanks. Sue.