As found on "another forum"TM
With thanks to @arg this is a direct quote from the "battery balancing - what's it for" thread in the Tesla forum dtd 2/8/2016
"Your battery pack is comprised of 96 cell groups, wired in series. The function of balancing is to ensure that those 96 groups are all at exactly the same state of charge. Normally, with the cell groups wired in series, any charge or discharge current flows through all of them equally and so they should in theory always remain at the same state of charge. In real life, things don't quite behave according to theory - charging is not 100% efficient, and the efficiency will vary between cells, and so after a while some will be slightly more charged than others.
The battery pack has a set of bypass circuits round each cell group that can deliberately waste (some of) the charging power heading for that cell group as heat, allowing the charge to be targeted at the group(s) that need it to bring them all up to the same level. The balancing circuit only allows a very small charging current to be targeted in this way, so balancing is slow if there is a significant imbalance to be corrected.
If the pack is out of balance, the effect is a temporary loss of capacity: when charging, you have to stop when the most highly-charged cell group hits the maximum allowable voltage, and when discharging you have to stop when the most lowly-charged cell group hits the minimum allowable voltage (in either case the cells would be damaged if you didn't stop). So if, for example, there's one cell group with 1% less charge in it than the others, then you can only use 98% of the total available charge, since you have to stop when that group gets empty (the others all still have 1% in them that you can't make use of) and when charging you have to stop when that one group is only at 99% (the others have all reached 100% so you can't carry on). Balancing allows you to use the full capacity again.
The main impact of never balancing is that it will take a very long time to balance when you do eventually get around to it. If you are never balancing, then presumably you are never needing 100% of capacity, so the fact that you've lost access to it doesn't really matter.
Arguably, using a pack that's severely out of balance puts a tiny bit more wear on it (for the same charge/discharge cycles) than if the pack was well balanced - but the effect is so small I'd be surprised if you could measure it let alone have an effect that's worth bothering about."