Why is M1*V1 = M2*V2 only used for diluting solutions?
As Satwik has stated in the comments, the equation relies on the conservation of moles principle.  


  $$\dfrac{mol_1}{V_1} \times {V_1} = \dfrac{mol_2}{V_2} \times {V_2}$$


Based on the above, given a constant volume of a solution, adding more moles of solute will only make the concentration increase, not decrease.  Adding in more solvent is the only answer in that case.