I'm not a frequent flye but I would really appreciate some clarification on this topic. How does an airline selling more than the number of physical seats it ha

I'm not a frequent flye but I would really appreciate some clarification on this topic. How does an airline selling more than the number of physical seats it has increase efficiency/effectiveness more than if it sold the same number of tickets as the number of seats available? Do they have that big of a problem with people canceling flights? What are the return policies usually for flight tickets?