I don't think it goes anywhere as I remember watching a programme about a guy who lost half his body weight and he could pull the excess skin from stomach right out to roughly 3 feet in front of him, other than that a lot of people have plastic surgery to remove the excess skin - YUK!!
I would think that if the weight is lost gradually, the skin cells are re-absorbed into the system, in a reverse of the process that allows skin to grow to accomodate additional weight and growth. This is logical - otherwise our skins would remain the same dimensions as when we are born - patently they do not. If the weight is lost quickly, the body may be unable to absord the skin cells quickly, hence the excess loose skin which may result.
I think Andy is basically correct but that the skin can also stretch. Women who have recently given birth do not have large flaps of skin hanging about although they often complain about "stretch marks".
the skin is an elastic type substance which stretches as the amount of fatty tissue or muscle increases. If weight is gained too rapidly the skin the skin can't stretch naturaully at the same rate so people get stretch-marks. So, in reverse, if the weight is lost too rapidly the skin can't shrink at the same rate, so the result is sagging overhangs of (usually over-stretched) skin. Often if the skin has had to stretch too much it never returns to it's former condition.