What a stock reservation is
A stock reservation sets aside a specific quantity of on-hand inventory for a particular order the moment that order is placed, before it actually ships. That reserved quantity is removed from what shows as available for any other order, so a second customer ordering the same limited item cannot appear to successfully buy stock that has effectively already been promised to someone else.
The distinction that matters here is between on-hand quantity (physically in the warehouse) and available-to-promise quantity (on-hand minus what is already reserved against other open orders). Selling against the raw on-hand number instead of the available-to-promise number is exactly how overselling happens.
Why this matters at low stock
The risk is small when stock is plentiful and mostly theoretical: overselling almost never happens with a hundred units on hand. It becomes a real, recurring problem exactly when stock runs low — the last handful of units of a popular item, where two or three orders placed within minutes of each other can all look fulfillable against the same on-hand count, and only some of them actually can be.
Reservations solve this by decrementing available-to-promise the instant an order is placed, not when it ships, so the second order sees accurate availability from the start instead of finding out at fulfillment time that the stock is already gone.
Releasing reservations
A reservation needs to release the stock back to available if the order it was tied to is cancelled or its line item is removed — otherwise cancelled orders quietly hold stock hostage that could have gone to another customer. Reservations should also be visible as their own figure, separate from on-hand and available quantities, so purchasing and planning decisions account for what is already spoken for rather than treating reserved and unreserved stock as the same thing.
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