The physiology behind it? Ok then...
With most machines the point where the muscle is contracting with the most force is in the peak contracted position (i.e. the end of the movement, or top). The problem with this is, that the muscles optimal range for producing force is the "relaxed" position (i.e. as you sit there with your arms hanging down at your side your pecs are in their optimal position for producing force, another way to demonstrate this it to lay on the floor in a bench press postion and lower until your arms hit the floor...this is also optimal just in a different ROM.
Another factor that won't contribute much in most exercises but may be a factor in some (like a squat VS leg press or extension) is neuroendocrinology or the hormonal response. The more complex and exhausting the exercise the more of a hormonal response is created - specifically testosterone and HGH. Although the effect is short lived it does have some long term effects such as: satellite cell proliferation and differentiation which means more nuclei and thus more protein synthesis and that of course means more muscle growth. Also, the testosterone reslease duringn the exercise will help prevent the post-workout muscle catabolism due to cortisol and such.
Then there is the stabilizer factor. If you do all machines you will develop weak stabilizers and in the real world we don't use machines to do all of our movements so this could set you up for muscle imblances and possibly injury.
There are three negatives of machines, anyway.
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Complex problems have simple, easy to understand, wrong answers.
