I have heard many people, including a couple of A&Ps, say that when
the rings on a cylinder all line up that the cylinder will loose
compression. This doesnt make sense to me because if the rings are
going to leak, then they would leak anyway. There is an air path
between each ring for the air to go.

True enough but at least during the differential compression check you are
checking the rate of leakage so anything that interrupts the leakage path will
slow down the rate. With the ring gaps lined up the rate will increase.

Do not forget that for the rings to work they must also rotate in the ring
grooves so at some point all the ring gaps could line up making an easier path
for combustion gases to escape.