Ah, one of my favorite subjects, time.
First, it seems to me (correct me if I'm wrong, please) that you guys think the Link is rewinding time. It's fine, but that means he loses everything. Which would mean he needs to save Termina in 72 hours (72 minutes of gaming w/o slowing down time), and Dawn of the First Day always has you as Deku Link.
Therefore, Link would make sense going back in time. This doesn't fit perfectly with the game either, but a lot less errors if Link went back as opposed to rewinding.
In a perfect implementation of the game, Link going back in time would have the Link who just went back in time see copies of himself run around doing things (so in the game, if you saved Snowhead on the 2nd day, you'd always have to wait until then to get into the grassy saved version. You can't do it again and save it on the 1st day or else you create a paradox).
Gamewise, you'd have to play through a few cycles to see copies of yourself run everywhere (the game isn't psychic). In "real life", however, the Deku Link on the first 3-day cycle would see his future self run everywhere. And his future selves will see Deku Link and remember that moment standing right there, and what I right now looked like, etc.:S
I know that was confusing, but that's how time is. If you want to hear more of my talk on time, ask! Including my theory on why paradoxes can't happen...