In the web hosting industry overselling is the practice of offering more server resources, such as disk space or bandwidth, than can physically be provided by the host. As an example, a hosting provider rents a server in their datacenter of choice that features 500GB of disk space and 3,500GB of monthly data transfer. On this server the web host sells and place 200 accounts, each advertised with 3GB of disk space and 20GB of data transfer. If every account on this specific server goes on to reach their limits of space and data transfer (which is highly unlikely) the total amount of resources used would equal 600GB of disk space and 4,000GB of data transfer. This is considered a fairly mild example of overselling.
Overselling is a very controversial topic in the web hosting industry. A small degree of overselling is usually expected and accepted as the majority of hosting customers will only use a small portion of the resources they are allocated. Web hosting providers are aware of this and the more accounts they can fit on a server, the more profit they take home at the end of the day. However, excessive overselling to the point that the server resource limits are met can lead to downtime, slow server response, increased website load times or even complete server shutdown by the datacenter that can only be mitigated if enough hosting accounts are removed from the server to free up resources or additional disk space and data transfer are purchased by the web hosting provider. Even with these consequences looming many hosting providers are willing to take the risk and continue to oversell on a large scale.
Overselling should not be viewed as strictly a bad practice; however, hosting providers who do oversell must be able to strike a fine balance between advertised resource limits and resources actually used so they can maintain a reliable, quick responding server that isn't overloaded with more websites than it can handle.