There are basically three categories of conditioning: skin, soft tissue, and bone.
Skin conditioning involves the toughening of the skin through desensitizing and callousing. Working directly on rough training materials will eventually cause the skin to thicken, making it more resistant to abrasions, cuts, and shock. This is useful, to a degree, to avoid splitting a knuckle upon impact or to prevent a severe stinging sensation when using a palm slap. Applied specifically to breaking, it reduces the need for a towel or other padding over a target. Extensive skin conditioning will allow you to perform advanced breaks without any sort of towel padding. When applied to an opponent, one who breaks with no towel will not necessarily be able to strike with more force, so its benefit is limited.
Soft Tissue Conditioning
This includes the enhancement of muscle and connective tissues. All soft tissues are strengthened in the process of general impact conditioning. Repeatedly striking an object results in a tightening and thickening of these structures. This can cause a conditioned hand to be very slightly larger.
These structures may also be enhanced through resistance strength training, such as with weights and isometrics. Soft tissues increase the integrity of the body, absorb shock, and help to support the bones. This is especially crucial in strikes that do not rely on direct hard bone contact, such iron palm, knife hand, and hammer fist.
This level of conditioning is more involved because it requires an extended period of time to significantly alter the actual bone structure. This is required for hard contact strikes such as fist strikes and certain forms of knife hand and palm heel. As the bones themselves become stronger, they are less susceptible to being broken.
This type of training may be mostly (physically) internal, with the bones becoming very dense, but not outwardly noticeable. It may also be external, as seen when the knuckles become visibly enlarged.
Such visible enlarging of the knuckles may also result from breaking the bone at the joint region, whether intentionally or unintentionally. Breaking the bone can cause the knuckle to appear very large, but it results in a compromised structure which is not as strong as one which has been gradually conditioned. Also, an actual break of a bone is clearly injurious and brings with it a much greater likelihood of negative consequences.