Because on every flight, a certain percentage of people don't show up, and certain number of passengers are on "flexible" tickets, that can be transferred to a different flight even very soon before departure.
By overbooking, the airline can ensure that all seats are occupied, which means more people get to their destinations when they want to, and the cost-per-passenger is lower (as fares don't have to include the overhead cost of empty seats).
Most of the time their forecasts are accurate and the system works well for everyone. But occasionally their combination of forecasting, incentives to transfer and customer service practices go wrong, resulting in the horrible incidents we've heard so much about.
By overbooking, the airline can ensure that all seats are occupied, which means more people get to their destinations when they want to, and the cost-per-passenger is lower (as fares don't have to include the overhead cost of empty seats).
Most of the time their forecasts are accurate and the system works well for everyone. But occasionally their combination of forecasting, incentives to transfer and customer service practices go wrong, resulting in the horrible incidents we've heard so much about.