Wikipedia defines “overselling” in the context of web hosting as “a situation in which a company provides hosting plans that are unsustainable if every one of its customers uses the full extent of services advertised. The term is usually referred to the web space and bandwidth transfer allowance. A hosting company may offer unlimited space and unlimited bandwidth, however, they put other restrictions in place such as CPU usage or inode limit.”
They also note that the practice usually incurs little ill-effect since most customers do not use any significant portion of their allocated resources – in practice, as margins get tighter for small web hosts (and some large ones) – the resource overselling has had major impacts on sites which are sloppy or lazy with their disk or CPU usage.