How do hotel pricing and occupancy actually work?

Not understanding this yet is fine; it is a skill, not a natural instinct, and every good revenue manager was once exactly where you are. At its heart the idea is simple. You have a fixed number of rooms and each night one goes unsold, that value is gone forever. So the whole game is filling rooms at the best price the market will bear, without leaving money or empty beds on the table. Price and occupancy pull against each other. Drop the price and you usually fill more rooms; raise it and you fill fewer but earn more on each. The skill is finding the balance for each night, because a busy night and a slow night call for opposite moves. Watch how bookings come in as a date approaches, and you start to feel where that balance sits. Start by tracking one thing: your occupancy and your average rate, night by night, for a few weeks. Just seeing those two numbers move together will teach you more than any explanation. Understanding grows from watching the pattern, and the pattern is right there in your own property waiting for you to look.