Overselling is a big trend in the web-hosting world at the moment. It's an easy way to get more out of your servers than normally is possible. The basic idea of overselling is that the majority of your clients are only going to use a fraction of the resources allocated to them so there's going to be a lot of wasted bandwidth and space. Overselling involves taking a gamble and selling more than you can handle assuming that the unused resources will cover it.

Let's say for example that a server hard drive is 80GB and has 1200GB of bandwidth. The hosting company has a look around and decides that to be competitive they need to offer plans with 2GB of disk space and 40GB bandwidth. With these figures they can only offer 30 hosting packages per server. This leaves quite a bit of wasted disk space and after a few months the company will probably notice that their users aren't using all of the available bandwidth. Because of this the company then assumes that it can safely sell at least 10 more packages on the one server. If the original number of customers already covers general costs then the extra packages provided by overselling are pure profit.

The advantage of overselling for the host is that they make more money off each server than they otherwise normally would be able to. The advantage for the client is that this extra revenue is usually transferred on (at least in theory) by cheaper hosting packages with more features. The problem is that these features are often 'smoke and mirrors'. A few users would be able to use their entire allotment without any trouble, but if every single client were to build their website up to maximum capacity the host wouldn't be able to handle the sudden increase in demand without adding extra hard drives, buying more bandwidth, or perhaps even another server. This would most likely lead to a fair amount of downtime.

Web hosts aren't going to advertise the fact that they oversell. It's not something that will gain them customers and it's likely to drive away a few. In general however, they're likely to get away with it without any real problems. The reason the idea even exists is that it is true that the majority of websites don't use all of the space that's allocated to them. The problem is that it's not a particularly honest way of dealing with clients. It's a little like the 'Emperor's New Clothes' where the host is just hoping that no one notices the fact that a package is in fact a little nude.

Overselling will generally not be a problem unless a host gets too greedy and ends up selling much more than they could possibly provide for. On the other hand, it's not even necessary as the host can usually make enough money to make ends meet without overselling. It will generally be quite difficult for you to find out whether or not a host oversells unless they specifically advertise it, or they're well known for having problems due to excessive overselling. Just make sure you do some research and choose a reliable host, not necessarily the one that appears to offer ridiculous amounts of bandwidth or disk space for far too little money.