So when you sleep on the ground in a tent, the pad is what provides insulation between you and the ground. Your sleeping bag does not - the part you're laying on gets compressed and loses all insulation properties.

The actual fabric of the hammock acts as the ground. If you sleep in a sleeping bag inside of a hammock, your back/backside will get cold as there is nothing insulating it and you have air movement under you, whisking away all heat.

An underquilt hangs snugly below the fabric of the hammock, providing insulation under you. A topquilt which sits on top of you int he hammock (usually with a footbox to keep your feet warm) insulates the top side.

Some people use pads inside of the hammock much in the manner you use a pad when in a tent. Different things work for different people. I tried the pad but found it moved around too much so now I use the top quilt and underquilt combination and it works fine.