I'm gonna have to disagree with you for the most part, spud. Each pound on your body does not consist of 3500 calories, I don't know where this came from. Also, fat is not broken down as a last resort. To lose fat, you don't have to starve yourself. In fact, to lose fat, you should be getting a good amount of fat in your diet.
You may disagree with me ShaftedTwice, but I graduated in 2005 with a degree in dietetics and that is what we have always been taught. 3500 calories is mathematically equivalent to 1 pound of tissue (which is actually a combination of muscle and fat). This means that 3500 excess will lead to 1 pound of weight gain and 3500 deficit will lead to 1 pound weight loss. Just like what Chillen said, you do want to keep up with weight training in order to prevent your muscle from breaking down (as long as you're giving your muscles adequate rest days).
Also, it is true that fat is broken down as a last resort. Your body does not like to use fat AT ALL because it takes a lot of energy to break it down into fuel, so it would rather use up the "easy" fuel resources first (the glycogen in your blood and the muscle, for example). This happens EVERY time you exercise more or decrease your caloric intake. That is why people who want to lose weight fast by eating <1000 calories per day for a week or two gain it all back immediately (they really haven't "lost" any fat stores at all).
It works like this: the first few days of starvation, your body uses up any remaining food energy and blood sugar. After these resources have been used up, your body begins conserving any remaining glycogen (since your brain and heart cannot function on anything other than sugar, aka carbohydrates). The other body parts receive nutrition primarily from muscle tissue and secondary from fat (but very little from fat because it takes too much energy to break it down and your body at this point is trying to conserve energy by slowing its metabolism). It's at this point that your metabolism slows. Once it reaches a certain point, your body finally breaks down fat and decreases the amount of muscle that it breaks down (after ~4 weeks of starvation).
That is why you don't want to restrict calories by more than 500 per day. Any more than that and your metabolism would really slow. That is also why experts always tell overweight people that weight loss is a slow and gradual process and to not rush it.
The reason low carbohydrate diets work so well is because they skip a couple steps. Since there is no blood sugar to use up in first place, your body enters the "ketosis" cycle and breaks down muscle and fat right away. This is not very good because your blood becomes alkaline and can affect several organs negatively (primarily your heart and brain are starved of nutrients). You may have heard that people who severely restrict carbs may have a breath that smells like acetone. This is from all the proteins in the body (aka muscles) that are being broken down to sustain life. Also, these people tend to ingest well over the recommended amount of fat, which is bad for cholesterol and your heart.
Speaking of fat, you should not consume more than 30% of your calories from fat and 10% from saturated fat (which is very low for the average American). But you're right in that too much fat restriction can lead to negative things such as: bad skin, bad hair, and many other things associated with fat intake (several vitamins are only absorbed with fat, fat is necessary to produce certain hormones, etc.). Most of your fats should come from omega-3 and omega-6 fatty acids (commonly found in such things as fish, nuts, avocados, etc.).
You need to base your maintenance calories on the Harris Benedict equation and your activity level (usually 2000 for women and 2500 for men), but you can calculate your specific caloric needs by typing in "how to calculate caloric needs" on Google. In order to lose or gain a pound, you want to do it slowly. Remember, 1 pound=3500 calories. Over a 7 day period, that would be a 500 calorie deficit/excess; over a 14 day period, that would be a 250 calorie deficit/excess. If you're trying to lose weight, you can combine exercise and diet and say "I'm going to lower my caloric intake by 250 and increase my activity so I burn 250 extra calories a day. That would equal 500 calories a day and 3500 in 1 week, equaling 1 pound of tissue per week."
I hope this makes more sense to you. I'm sorry if it's more confusing
.
. I always seem to write novels when I comment on things. Sorry!