I think people are forgetting something.
The human body stores fat in a number of ways.

One is what we normally think of, the subcutaneous fat. We can pinch it, and it's what generally pokes out and make us look flabby.

Another way the body stores fat is inside muscles.
This makes muscles look bigger, but also makes them softer.

Exercise promoting fat loss will eat away at that fat as well, making the muscles shrink visually, but the muscle mass doesn't necessarily decrease.
This is also part of the reason why muscle size is a poor indicator of strength.