For the best results and fewest leaks the walls are tiled in a certain way. Normally, the tile is brought right down to the shower pan. So, instead of a gap between the pan and the walls, you actually have a tight transition from pan to tile. This transition allows for the least amount of seepage through the shower walls. Without this type of installation, you risk cracking and eventual water damage, which leads to mold and rot.
The tile is set into a cement mixture that is spread onto the walls, which are covered with cement board or drywall in most cases. This tile is hard ceramic or porcelain, so the surface is impenetrable to water. That doesn't mean the entire wall is water tight, however. There are gaps between each tile, which are filled with grout. The grout is the weak link, and as the grout cracks or wears away, that's when water leaks occur. Tiling down to the shower pan leaves less room for grout, so in turn it creates fewer leaks.
As you can imagine, the seam between the pan and tile wall is the most susceptible to cracking because the shower pan flexes and bends when people walk on it, and this causes the pan wall to drop below the tile, stretching the grout. To cut down on leaking, the shower pan has a lip that extends up from the side of the pan. This lip fits underneath the drywall or cement board to prevent water from seeping through the grout and through the drywall. The lip helps prevent water from leaking through the grout and through the drywall to the framing underneath.
Fiberglass walls fit over a shower pan in a similar way to tile. Instead of the tiles being installed on the drywall or cement board, which is installed over the shower pan lip, the fiberglass walls connect to the top edge of the shower pan. These walls also effectively fit over the drywall or cement board and shower pan lip making another virtually seamless transition.