I don't know why the author coded it this way, it can be done much simpler:

    function fuzzysearch(needle, haystack) {
        var hlen = haystack.length;
        var nlen = needle.length;
        
        if (nlen > hlen) return false;
        if (nlen === hlen) return needle === haystack;
        
        for (var i = 0, j = 0; i < nlen; ++i, ++j) {
            while (j < hlen && needle.charCodeAt(i) !== haystack.charCodeAt(j)) ++j;
            if (j === hlen) return false;
        }

        return true;
    }