Hi David,
I believe that the nicks and cuts open as the Shmitt is moved across the car. This causes them to be exposed to the paintwork, or more so sharper objects. It might be on a grill, an emblem, prehapes around a lisence/number plate. This means the very top, inside edges of the nicks and cuts get cut and damaged even more.
When this damage happens you now have foam with lots of small (unnatural you might say) cuts. These open and collect dirt when the cut is open, and close when the mitt is flat/on a flat surface. The dirt is then trapped and forced deep in to these fragmented cuts.
It makes it really hard to clean them out, infact less so then the rest of the SHmitt. When i have inspected mine for example i found them in there, even thought i have a pretty good wash technique.
As i said on my first post this can become a really sensitive topic!! Im just point out my observations.
I hope i answered your question? How the foam on the interior of the cut becomes damaged, and why, due to defragmentation its less easy to clean out and more prone to holding dirt. Also how when the ShMitt is applied to the paintwork the next time its possible for some dirt to escape (assuming everyone doest wash there Shmitt and cuts out everytime with a tooth comb!!) or be forced on to the paintwork and marring to occur.
The i was working on a was V70XC, blue so plenty of curves and plastic!!
Geoff