"What happens to these permits?"
Yes, permits must be picked up on the day before use. Some hikers will show up at the Interagency Visitor Center early and tell the people at the desk that you are interested in getting a permit from a no-show. I believe that they issue you a "waiting number." Then, when the time passes, they will start calling numbers. Assuming that you are waiting right there, you may get something you can use.
The no-show list comes from two groups. One is from hikers who saw in advance that they were not going to be able to come at all, so they called the forest service. The other group is from hikers who simply could not make it to the visitor center in time, perhaps due to auto trouble or poor planning.
I've seen hikers rush in the door of the place just slightly late, and their permit was already gone. Sorry, but that's the way it works.
This year will be my 37th annual Whitney hike, and I have never failed to get a permit. It has been only the last ten or fifteen years that the permit quotas have been really tight.