Allocation is an indication of how many percent of the investor's application is approved for participation in the IPO. It is often impossible to 100% satisfy the demand of every participant wishing to purchase stocks of a new company.
During allocation, securities are distributed among all investors who submitted applications. Moreover, the more investors participate in the IPO, the lower the allocation percentage will be for each of them.
For example, an investor could apply for $10,000 and claim 500 stocks worth $20 each. As a result, the broker will credit such investor with 100 stocks worth $2,000. This means that the allocation was 20%. On the other hand, limited supply and increased demand can cause stocks to rise significantly in price in early trading.