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Usually one of two things happens:
1) The paint get scratched
2) Oxidation/chemicals/etc mess up the finish

A typical polish contains abrasives which will smooth the paint down to level out the scratches or in case 2 it removes the oxidation. There are also non-abrasive polishes that just fill in the scratches and leave a glossy finish.

Basically, you only want to polish if you have scratches that you want to remove, or if the surface is dull. However, you don't want to use a polish so much that it will eventually sand down through the clearcoat, making the paint even more dull. To avoid this, use the lowest abrasive polish that will still get the job done, and don't use it unless it is needed.
 
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