To essentially quote http://en.wikipedia.org/wiki/Tide:
Energy of the Earth is not conserved while energy of the Earth-Moon system must exist. Energy from bodies of water are diminished (by about 3.75 TeraWatts) where about 98% of this energy loss is due to marine tidal movement.
Because energy is lost in the water, this imposes a torque on the Earth which changes its Rotational Kinetic Energy ($KE_{rot} = \frac 12 I \omega^2)$. Because angular momentum is also conserved in the Earth-Moon system, that gradually transfers angular momentum to its orbit (By conservation of angular momentum to the Moon's orbit ($L = I \omega$, Earth spins less, Moon gets pushed further away) The equal and opposite torque on the Earth reduces its rotational velocity, thus lengthening the day by about 2 hours per 600 million years.
$E = \frac {1}{2}( I_{earth} \omega_{earth}^2 + I_{moon} \omega_{moon}^2) = constant$
A torque on the earth causes its angular momentum to decrease
$\mathscr{T} = \frac{dL}{dt} = \frac{ d{I \omega}}{dt}$
But Angular momentum is conserved, so the moon must rotate faster around the earth
$L = I_{earth} \omega_{earth} + I_{moon} \omega_{moon} = constant$