Why you can lose inches while the scale doesn't budge

It never made sense to me how you could get smaller...yet the scale tells you that you've lost nothing?!? A quick google and I came across this article (this is just a part of it, it's quite long - source link is at the end). It seems to make sense, but I can't personally vouch for its accuracy. What does the hive mind have to say?

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The solution is to understand what is going on in your body in light of the current state of human affairs. Today, all a person has to have to eat every day is money and transportation to a grocery store or, better yet, a nice restaurant. However, your body's survival instincts have not matured in a million years. Your body still thinks you are a hunter-gatherer. Yes, in spite of a million years of evolution, your body still thinks you are going to have to go out and kill a mammoth to eat. The survival instincts with which you are going to have to come to terms are read-only memory. You can't overwrite them. Deal with it.

That said, let me tell you what happens when you lose a pound of fat. Your body has been saving this fat for that long hunting expedition you're going to have to go on to track, kill, dress and retrieve that huge animal. It keeps the fat in little pillows distributed throughout your body. When you start losing fat, it doesn't trust you to continue whatever insane path you have chosen that is causing the fat to dissipate. So, when the fat comes out of the pillow, it injects water as a "place holder." Sometimes that water actually replaces the weight of the fat it lost. Sometimes it replaces the volume.

Water weighs more than fat just like lead sinkers weigh more than feathers. If you stuff a pillow with a pound of feathers, you'll have a nice big pillow. If you stuff a pillow with a pound of lead sinkers, you'll have a nice (but rather hard and uncomfortable), small pillow. Now, let's say your body removes a pound of fat and replaces the weight with a pound of water. Your weight will stay the same, but you will be smaller. But, if your body decides to replace the lost fat by volume, that is a quite different story. Remember the great big feather pillow as compared to the tiny lead sinker pillow? Well, now think of a gallon of feathers and a gallon of lead sinkers. Try to pick up the gallon of feathers. Piece of (you'll pardon the expression) cake. Now, try to pick up the gallon of lead sinkers. Sucker's heavy, ain't it? So, you will be smaller, but you will have gained weight.

Eventually, your body makes the executive decision that you are not going to replace the fat you lost, and it lets go of the water. In the words of Danny Skaist: "When your body accepts the fact that they are no longer needed, the water will be expelled and the cells closed. This is known as the "whoosh."

What makes your body decide to replace by weight or replace by volume? I dunno. But I do know that it does not seem consistent to the casual observer. What makes your body decide that you are seriously not going to replace the fat you lost? I dunno. But now you know why it's so important to drink your water, huh? Loss of fat is inextricably related to water intake. It's more than a little foolish to go on a diet that facilitates the removal of fat and then refuse to give your body the tools it needs to do so.

Source: http://www.carbsmart.com/outout.html