Overbooking is a common practice and is not prohibited by any law or regulation. However, DOT regulations require the airline to compensate you when you are involuntary bumped.
When you are bumped from a flight because the airline sold too many tickets, the airline must get you to your destination within one hour of your scheduled arrival or else pay you compensation. The amount of compensation is based on the length of the delay and the price of your ticket.
If you arrive between one and two hours behind schedule on a domestic flight, or between one and four hours on an international flight, the airline must pay you 200% of your one-way fare, up to $675. If the delay is longer, the airline owes you 400% of the one-way fare, up to $1350.
Before involuntarily bumping passengers, the airline will try to entice volunteers with vouchers. However, if you are involuntarily bumped and owed compensation, the airline must pay you in cash or by check at the time and place of the denied boarding.