Let $Z\to X$ be a closed immersion with ideal sheaf $\mathcal{I}$. To me the exact sequence $0\to\mathcal{I}\to \mathcal{O}_X\to i_*\mathcal{O}_Z\to 0$ says that the functions in $\mathcal{I}$ are precisely those functions that vanish when we pull them back along $Z\to X$. Based on this interpretation, I would expect that $i^*\mathcal{I}=0$, since we pull back functions that vanish when we pull them back.
However, $i^*\mathcal{I}$ is actually the conormal sheaf, and hence not zero. I can do computations to see that $i^*\mathcal{I}$ is indeed the conormal sheaf in the sense that the dimensions of the fibers are indeed the codimension of $Z$ in $X$, so it works out.
What I do not understand is why my first reasoning fails. It fails because its not true, but it suggests that I'm not thinking about the ideal sheaf exact sequence in a correct way. So I hope that someone can point out the flaw in the first reasoning.