The project planning page looks at the total workload of your resources over the duration of the stage/project. If a resource is over-allocated (greater than 105%), the circle around their profile picture will show up as red.

Example: If Jack is utilised on a project for 60% of his time and he marks himself as unavailable to attend a two-day conference over a three-month project, it is unlikely he will show up as red. However, if he is working on a one-month project at 90% utilised, and wants to attend the same conference, he will show up as red, as there are not enough hours to account for the time off.