Money is a wealth transfer medium. If you're familiar with physics, think of exchange particles associated with forces. In biology, it's similar to blood. I'm not sure a transportation analog works but it might (I need to think about that).
Money works when it is exchanged for goods and services.
When money stops moving, the economy "stops". There isn't any exchange going on (or there's far less than before). Economic activity slows, employment slows, etc.
Credit and leverage, done right, allow more work from a given initial money supply (technically, credit increases the money supply), but this is predicated on the borrower repaying the initial investment. Done wrong, credit is extended for activities which don't allow repayment, and not only can't the the interest be paid, but the initial principle is lost -- and the money supply contracts.
Money is not wealth (value imbued in goods/services), but it can be (with a stable currency) a measure of wealth.
If the amount of money in circulation is decreasing (or the real wealth of an economy is increasing relative to a fixed money supply, say, with a gold/silver standard), then the value of a given denomination of coinage increases. Hoarding coin/currency/money becomes a wealth-accruing activity, while facilitating economic activity (by spending money) largely loses wealth. Hence the problem with a highly deflationary currency.
Economic theory says you want a currency whose value tends to be stable, or slightly inflationary, with time, in order to encourage spending rather than saving.
Note that none of this addresses the underlying physical economy, resource limitations/depletion, or other criticisms of traditional orthodox economics (most of which are highly valid -- we live on a planet of limited resources and good planets are both hard to find and the commute is a real drag).
Regarding your comments on savings: yes, there is a well-known "savings paradox" where individual incentives to save are opposed to the overall economic goals of growth. This is one of many such individual/group paradoxes, and is one of the principle reasons for laws (legal, moral, or otherwise). The 1971 book The Logic of Collective Action by Mancur Olson is one of the better illuminations of the concept: http://economics.about.com/cs/macroeconomics/a/logic_of_acti...
There are numerous other conflicts and paradoxes within economic theory and reality. Free markets, where they exist, work quite well. They're rather more rare, I'm coming to believe, than is frequently thought, and many forces work to limit them (political, plutocratic, monopolistic, and others).