It's both... let me see if I can find a link that actually shows what it does, but basically the fungus attacks the fins, feeding on the skin cells. But at the same time, a reaction kinda like gangrene sets in where the body is trying to rid itself of the area associated with the infection by sloughing off the dying skin, furthering the deterioration of the fins. I don't know the exact process, but it's a little of both things.
I could be wrong though.