fat helps to send signals to the brain that you are satiated (theory is that carbs, or excess thereof, can block these signals) - look up ghrelin/leptin hormones if you want more details. as you've discovered a 'low everything' diet is unsustainable as you feel crappy. once over the hump of your body switching to fat-burning you should feel great, so it's a much more sustainable way of eating. i've eaten like this for over 2 years now
as kotinka says it's you're primary source of energy when you're low carbing. you shouldn't be eating nothing but bacon and eggs, that sounds madly unhealthy! you should be adjusting the proportions of macronutrients from (majority) carbs:protein:fat to (majority) fat:protein:carbs. the carbs should come from green vegetable sources and some dairy if you're eating it.
low carbing should not make your breath stink if you are drinking plenty of water, certainly not once you're in the swing of it
you don't want to overdo the protein as it can increase blood sugar, resulting in insulin release, due to gluconeogenesis
many people find that when they stall while low carbing for a few months, increasing fat intake can help restart weight loss (rather than decreasing fat, as you might imagine), so make of that what you will
however, i did find that when i was trying to lose weight there was a limit to the amount i could eat and still lose weight. if it was low carb, i wouldn't put on weight, but i wouldn't lose it either. presumably i was meeting my energy requirements and didn't need to dip into body energy stores. however, increased food intake also often meant increased carbs, so difficult to say whether there was too much fat being consumed too...
during the first couple of weeks of low carbing however it's best not to worry too much about the quantities you're eating, because you wnat to get into the swing of low carbing without succumbing to the carb cravings. your appetite and 'fullness' signals should adjust quickly and you can worry about portion sizes and tweaking your macronutrient intake later (if indeed it ever becomes necessary)