Can confirm - a very close friend of mine who is a flight attendant on JetBlue who has helped me out with numerous flights using his buddy passes, gave me insight into this. Basically, airlines are allowed to oversell because historically, a number of people will miss flights by differing margins, and this helps recover potential losses for those who do miss their flights. Works great when people normally miss their flights, but not so much when everyone shows up.
I never understood this explanation; if you miss your flight, do you get a refund? If not, the airline are still getting paid so shouldn't be booking the same seat twice.
You could miss your flight because you've been stuck in TSA's checkpoints or because of a delayed prior flights; in both cases, the airline has to rebook you onto a later flight, so you're still getting to your destination and still take up a seat in a plane.
jfim explains this well. Airlines want to get you to your destination and will roll you over to another flight if you miss your's. It's happened to me due to traffic jams. And as jfim points out, events like weather or mechanical issues(making departures later than intended) can cause you to miss a layover connection as they tend(not always) to make those razor thin in terms of time.
Why get paid once for a seat when you can get paid twice?
If they had not overbooked it, would the flight price been the same (for you)?