It's a bullshit diet. What happens is your muscles and liver dump their glycogen stores to satisfy your caloric needs while you're fasting. As your glycogen is released into your blood stream, it releases the water it was bound up with. The water is then excreted, and is the primary source of weight loss, with glycogen being the secondary. It's very normal to see a 10-pound drop in weight over one week.
After about three to four days, your glycogen stores are depleted and your body will start to break down fat for energy. Your brain requires at least 100-120g of glucose to function per day, and will begin to use ketone bodies leftover from the fat break-down process in place of glucose. Ketone bodies alone do not provide enough energy to substitute for glucose, and your liver will manufacture glucose from glycerol (another byproduct of fat break-down).
Five days into the diet, your brain is getting all its energy from ketones and some glucose manufactured from glycerol, but it isn't enough to maintain proper function. At this point, your liver will begin to break down protein from both your muscle mass and organ tissue in order to manufacture glucose. This is terribly inefficient as you only get about 1g of glucose per 3g of protein. You are now experiencing full-blown starvation.
You ultimately loose a great deal more muscle mass than fat mass if you are on this diet for any great length of time. You will regain most of the weight you lost within a day or two of resuming normal eating habits as your glycogen stores will reload and absorb a great deal of water. Your body will also work to replenish your fat stores to a greater level than when you started, and there's little to no action taken restore your muscle mass, but any organ damage due to protein consumption is fixed.
In short, this diet is like shooting yourself in the foot.