If I understand it correctly, stuff like animation is done on the CPU. If you tesselate, you can work with less detailed geometry during the animation stage. This saves CPU cycles. The first part of the rendering pipeline (you'd typically do tesselation after the initial setup phase I think, if I look at the DirectX scheme for tesselation) could also be simpler. On the 360's graphics chip, that would leave more power for the shading part of the pipeline. You are correct though that this part of the pipeline would be more demanding with tesselation enabled - assuming of course you're not using tesselation only to save on compexity right up to the point where you start shading, and only then tesselate in the amount of detail that brings the complexity back to the level you were initially planning to render in the first place before using tesselation, because in that case the demands on shading would be the same as before - you just optimised the rendering to leave more room for other stuff.
HUH?!?!?!?
How does the use of the tesselator take any load whatsoever off the cpu/gpu?
By tesselating your geometric meshes, aren't you in effect creating more polygons?... More polys that will need shading?
Surely the tesselator will increase GPU vertex load more than anything, hence maybe the reason it isn't used much...?
You really need to explain how using the tesselator can help with anything as as far as I understand how tesselation works, it would likely decrease performance overall.