The goal, of course, is to lose maximum fat and minimum muscle, and to keep water retention at a healthy minimum. When you step on the scale and register a pound lighter than the day or week before, you probably assume that you've lost a pound of fat; if you weigh the same or more, you probably assume that you've lost no fat, or gained. Unfortunately, it's not that simple.
Nothing swings weight up or down as easily as water retention, for example. If you eat a lot of sodium and carbs, and drink little water, you will retain quite a bit of water, giving you that puffy, smooth look. This can easily add 3-5 pounds in a day, which can be quite disturbing if you happen to hit the scale in this state. On the flip side, you eat little sodium and carbs and drink plenty of water, your body will flush water out, giving you a harder, more defined look, which might lead you to think that it was a great day of fat loss.
The unpredictability of water retention is one reason why I only weigh myself once per week, on the same day, in the morning, naked. Weighing yourself multiple times per week, or worse, per day, will quickly kill your confidence and mess with your head.