Bob, the normal publishing procedure is to print up thousands of copies of a new book, which are stored in a warehouse. From the warehouse, the books are shipped to a distributor who divides the shipment into smaller packets that are sent on to bookstores that have ordered the books. More often than not, these orders do not exhaust the initial printing, so some books remain in the warehouse awaiting additional orders.
In print-on-demand, a book is printed only when one is ordered. It's a little slower than walking into a store and buying a copy, but you rarely have to wait more than a week. POD cuts down on the need for a middleman, and it eliminates warehouse fees altogether. There are new printing outfits that do this kind of work exclusively; the biggest is Lightning Press, which Scrivenery uses. It's a practical way of fighting against constantly rising printing and distribution costs.
As I see it, the biggest disadvantage of POD is that is offers no opportunity for impulse buying. How often have you gone into a bookstore to buy one book and walked out with two or three? Even that would not be a problem if bookstore owners would order POD copies and display them on their shelves. But so far owners have been reluctant to do so; the technology is still too new, I guess.