When you don't drink enough water, your liver has to help your kidneys. This takes the liver away from another of its jobs, metabolizing fat. The kidneys need water to function optimally and remove toxins from your body. Your body doesn't care too much if the fat gets to hang around a little longer, but those toxins gotta go!
Water is essential for all bodily functions, be it removing toxins, brain function (the brain is made mostly of water), or muscle and joint health. Even the slightest amount of dehydration can effect your performance, and thus your training and gains as well. Also, chronically not drinking enough water can make your body retain water and look smooth.
If all those reasons aren't enough, just the one about the liver not being able to burn fat because it has to help the kidneys is enough for me! If you're training hard, you need more than the standard "8 glasses" - follow Stryc-9's rule above about urine color.