Release : All Supported
Allocation is calculated by the Resource's "Default Allocation %" along with availability.
For example if the user has a Default Allocation % of 50%, they will be allocated to the project at 20 hours for a typical 40 hour week (assuming they have 8 hours of availability). If on their calendar they have a day off, than for the week their Allocation will be 16 for the week (again, assuming all the same from the example above).
For more detailed information, see: Allocation, %Allocation, and Availability calculation overview