Yes it does happen. It is not a common occurence but one that is possible. Cruise lines use a similar approach to inventory management system much like the airlines. They often oversell a cruise knowing that a certain percentage of people will cancel. If for some reason that percentage of people canceling is signifcantly lower than expected then someone will be out of luck.
The compensation for being bumped is usually pretty good. Full refund, significant future cruise credit and perhaps reimbursement of already purchased airline tickets. The cruise lines are only required to refund the full cruise fare and the other stuff are added "goodwill" gestures and not guaranteed so insurance is always a good idea so you can recoup your airfare and other pre-paid expenses.
People who book a guarantee have the greatest chance of being bumped but, as I said earlier, the chances are quite low.