This old saw has been around for ages, partly because meat cooked over low heat will exude liquid while meat cooked over high heat—seared—appears not to. When you cook meat, the collagen fibers contract and this squeezes liquid out of the meat regardless of the cooking temperature. With high heat, the liquid boils away immediately and you never see it, while at lower temperatures the liquid accumulates in the pan.
Searing, or more specifically browning, is important because of the Maillard reaction. When the proteins and sugars in meat are exposed to high heat (searing) a large number of chemical reactions take place, resulting in the creation of lots of new flavor elements. It is these flavors, both in the browned surface of the meat and in any pan juices that result, that make searing such an important step in some recipes.
Another reason for this myth may be because searing meat that will be stewed, roasted, etc. does indeed give much better results. It has nothing to do with sealing in the juices, however. Careful experiments were performed in which identical pieces of meat were cooked with and without searing. If searing did seal in juices, then the seared meat would lose a smaller percentage of its weight during cooking than the unseared piece and thus be heavier after cooking. In actuality, both the seared and unseared meat lost about the same amount of weight.
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