Yes and no, there are some misconceptions, and there is no clear undisputable answer to any such question (as there are three dozen factors playing in, and diagonally opposing goals).
No single thing is always good (or always bad) and no single thing works well for everybody and in every situation. Or, for every goal, for that matter.
First, while people with a lot of muscle are sometimes (often, even) stronger than others, muscle mass does not (at least not much) correlate with strength. That's a misconception. Muscle consists of fibers of different types that are organized and "addressable" in contingents. Some are stronger, some are faster, there's a difference on how fast they get tired, etc etc.
Also, there is raw physical strength, and actual strength. Strength is predominantly a matter of your cerebellum being able to activate as many muscle fiber contingents as possible simultaneously, in a controlled, balanced manner.
In theory, for maximum strength, your muscle should contract as if you had a spasm from accidentially having gripped an electric wire. In reality, movement is a highly complex thing that requires a lot of care, interaction between muscle groups, and balance. You do not want a tendon to tear out a piece of bone (muscles are actually strong enough to tear your bones to pieces!), you do not want fissures in tendons or ligaments, you do not want to dislocate a joint, you do not want to fall over, etc etc. This is a much more complicated task than one would believe, and a lot more has to go on for seemingly trivial tasks such as just lifting something off the ground.
Plus, for a contraction that lasts longer than a second or two, different fiber contingents have to be switched in and out seamlessly since those in use become more and more tired (and eventually, exhausted, and damaged). On well-defined people you can actually watch this when holding a weight isometrically (visible through the skin). Pretty funny sight, actually.
It's the cerebellum's job to coordinate and maintain a controlled, steady contraction, and balance the muscle's fatigue so that in case something unanticipated and bad happens (we do not have muscle for fun and sport, but because it's necessary for survival!) there's a reserve. In other words, if a tiger comes from hiding in the bush after you have been doing a dozen squats, there must be at least some responsive fibers remaining, or you're dead. In bodybuilding, what people typically do for maximum effect is, they push it so far that this is no longer the case (which is a highly critical, undesirable situation, so your body must react to it in order to guarantee your survival on the next similar occasion).
So, long story short, someone with less muscle can very well be stronger than someone with more mass. But sure enough, more mass in general makes the job of finding a well-rested, functional bunch of fibers somewhat easier.
Next, fat does not contribute to moving things, but it is not dead weight either. That, too, is a misconception.
Fat is a source of energy, and contrary to urban myth (and fitness myth) fat oxidation does not just happen at "fat burning intensity with ~120bpm on the stepper". It happens all day (and night), and it is our main source of energy, we literally live from it. It's just that as you crank up power consumption, fat oxidation eventually hits a ceiling where it is no longer able to supply all the required energy alone any longer (it still happens, and at maximum intensity).
We have many tiers of stores that provide the required energy ranging from one to ten seconds (ATP / phospocreatine) over few minutes to dozens of minutes (glucose, glycogene) to several days (fat). Generally, the shorter lived, the higher the peak power. Note however, that none of that is black or white. You do burn fat when doing a set, and in between sets, which contributes to restoring the ultra-short-duration depots.
It's comparable to the relationship of combusion engine, battery, and supercapacitator in a modern sports car (say, a Lamborghini Séan). The supercapacitator gives that thing the accelerates like a rocket feeling, but for actually driving the car it's pretty useless. Other power sources are needed, too.
In addition to the depots in our body, we have the ability to restock energy from the outside (food) as we go. While doing exercise when hungry (I've actually heard this recommendation, which is total nonsense) is bad, doing exercise after eating tons of calories is not trouble-free either. Some people (bodybuilders) seem to do that, but this doesn't mean it's good (or unproblematic).
For one reason, the digestive system needs blood to function, and you may want that blood in other places. Also, it gives you the typical ugly pumper belly (not alone, but it's one of the causes) which is not just unpleasing but also a thing that significantly reduces the likelihood of living a long life. Lastly, you'll have high insuline which is disputable for being beneficial (depends on the point of view). If building up mass is all you want, then sure, insulin is your friend. If you reach into the chemistry toolbox and take some other borderline-legal substances which internalize GLUT4 receptors, then sure enough insulin is a good way to counter that effect.
But if you are worried about health in general (insulin resistance, obesity, also regularly activating proto-oncogenes may seem like not such an awesome thing), your point of view may differ. If you would like to have fat oxidation going, then again insulin is, uh, not precisely the thing you want because it's not happening.
So if training crammed full isn't good, then why not train hungry? Well, because when you use a muscle, it has to get energy from somewhere to restock itself. It has no more than three choices, and if there is no "sugar" around, it has to be "fat", but fat doesn't provide energy fast enough to cover it all under heavy exercise. So there remains only one thing it can get energy from, and that's the single one thing that you do not want to sacrifice. So, training hungry is really a bad idea.
Now, why might more fat be advantageous? More body fat predominantly means that your adipozytes are more inflated, but it also means that you have a few more of them (not proportionally, for the most part it's the always-existing ones being more inflated). With each of them necessarily carrying a few mitochondria, having a few more necessarily means that a little more power is available. Also, an adipocyte that is stuffed with fat is generally more "willing" to oxidize that since the pathway has over-abundance on the input end. Generally, one could say that your reserves are higher, and so your body is generally more "willing" to use that resource. Remember, we don't have fat for fun and sports either, we have fat to stay alive. The closer your depots approach zero, nature tends to get reluctant to use it up because your body does need some minimum reserves. Otherwise, you might die in your sleep, or assuming the hunter and gatherer doesn't find something edible the next morning shortly after waking, there will be no tomorrow.
Thus, arguably, with more fat you will be able to exercise a bit longer (continuously at moderate intensity, or with breaks at higher intensity), and therefore should also generally be able to build up more muscle (if you train for building up muscle).
That's not just a theory, it's what I can confirm as being "reality" in an before-after comparison done last year. Same strength and same or almost-same reps on the first set after working off 25kg over a few months (preserving muscle as much as possible). However, steep decline on following sets, much longer breaks and reduction in reps needed, which came dissatisfying. A few good meals, regained 3kg within 2 weeks, steady weight since, and performance "instantly" back to normal. Since you can hardly gain 3kg of muscle in 2 weeks, it has to be fat. Funnily, I can't see where it went (but won't complain). Bottom line: nature knows best how much fat it needs.
Also, fat is necessary for many things, such as for example building steroid hormones. Admittedly, not much is needed, since you don't need kilograms to build a few dozen nanograms of hormone. But of course it doesn't make any sense to worry about e.g. testosterone on the one hand side (and stimulating or actively supplementing it, maybe!), and then, on the other hand side, chastise over the base substance that it's being built from naturally.
It's the same principle as everywhere all over: if you do not give the biochemical pathway abundance on one end, then sure enough something still comes out at the other end, but maybe not as much as you would hope. Nature is very tenacious and will do a tough job at keeping you alive and functional somehow, but by depriving it from the necessary building blocks, you make its job harder than necessary.
Conclusion?
For everything except professional bodybuilding or Strong Man stuff (which de facto requires you to do unreasonable, crazy, unhealthy, disputable, and sometimes un-ethical or illegal things), eat normally, try to have a kinda normal build (with kinda normal fat), and you are good to go. Somewhat on the slim side, that's fine (it's what looks best in my opinion, too). Being obese is bad, being almost-starved is bad.
Got a few kilograms too many? I'll tell you a secret: Keep your training schedule, but eat 500 calories per day less (which is surprisingly easy to do if you have an Android phone, use Samsung Health), that'll be half a kilogram per week gone. If you are serious, you can of course scale that up, but then it's no longer a fun experience.
No super secret diet (which doesn't work) needed. No fatburner chemistry (which doesn't work) needed. No crackpot-idea alternative paleo-lowcarb-highcarb-lowfat-whatever stuff needed. All that's needed is discipline and a few weeks of time.
Sure, you can hardly do the Strong Man pulling trucks and lifting 60kg boulders challenge when you have 60kg of body weight. That simply doesn't work, if for no other reason because regardless of strength and endurance there's no way you'll hold your balance. You practically have to be fat, kind of.
And sure enough, if you plan to be on stage as professional bodybuilder, you will necessarily have to reach into the chemistry toolbox, and you will necessarily have to watch more carefully what you eat and be hungry more than once. Because, oh hell, you have to look like you're starving.
But to 99% of all people, this doesn't apply. Good, even excellent strength (and physical appearance) is perfectly chieveable otherwise, and a little (not too much) fat is perfectly acceptable and rather an advantage both in appearance and for performance.
Don't follow every half-scientific (or non-scientific) trend, and don't reach into the chemistry toolbox too deep, and you'll likely stay healthy. In fact, you can be perfectly happy and have good muscle without any magical additives at all. Most things are overrated (or outright snake oil) anyway, and of those things that actually do work, most are questionable in terms of health.
Yes, you can have eggs for breakfast and not fear the cholesterol. Please, do eat butter, not margarine. Stop the pseudo-health stuff.
Do you like chia and quinoa? Well alright, go ahead and eat them, there is no harm. But it's not going to summon a divine miracle. There is outside of ideology or pseudo-science no need to eat anything that your grandparents didn't already eat, too.
No, you don't need to, or want to, swallow 200 grams of protein shake per day (although a little casein to cover the hungry time over night doesn't hurt, and sure enough a little whey either before or after training doesn't hurt either). No, you don't need to eat a kilogram of chicken per day either.
No, you shouldn't go training hungry. No, you shouldn't cram it in like a madman before exercise either. Apply reason. No crazy things.
