Michael, it's the latter -- callouses hiding damaged bones and joints. Callouses are nothing but layers of dead skin. Calcareous deposits on the bones caused by constant impact (bone spurs) likewise are not shock absorbers, but irritants against which tissue rubs and is harmed. do not protect the hands from impact. Such force goes right through those layers of dead skin and right into the joints. I did a lot of informal study into this when I had to take physiology during one of my grad school stints (biology/primate evolutionary ecology). It gave me access to some fine resources, since I was at that fine, hoary institution in Cambridge, Mass.
I believe that people confuse the process of bone-density-building through slow, long-term weight-bearing exercize, with the damaging process of percussive impact "exercize." The two are very different, and only the first is productive.
Likewise, slapping the ground hard with the forearms and palms is counter to nature's "intent" for the human body. If you see it as a benefit that you're damaging surface blood vessels, bruising muscles and killing nerves, okay, but the body of such an organism as a human is not meant to take that kind of constant abuse. One pays for it later in life.
Since most people do the damage when they are in their 20s and have better recuperative powers, they may think that the practice is harmless and in fact is useful. When they turn 45 or 50 they may wonder why they are riddled with arthritis, bursitis and other woes, but write it off to "old age."