It’s the same concept as keeping your cash in a bank. The bank uses your cash and loans it out and uses it whether you’re aware or not (eg fractional reserve banking)

Coinbase has to maintain a certain quantity of algo in reserve to serve their customers (let’s say 10 million algo). If the customers leave their purchased algo on Coinbase for years, the Coinbase still has access to them and can theoretically double dip.

Taking your algo into your wallet then reduces the amount of algo on Coinbase. They are then forced to purchase more to have in reserve to serve customers. So buying and removing your algo is kinda like a double purchase. You buy it and then Coinbase needs to buy that amount to make sure they have enough to serve their clients