The ability for customers to cancel their own bookings via the online booking portal will be disabled by default, to turn on this feature click into the main settings page and from the Services Offered you can enable this feature for each booking type that you offer by clicking on the 'Cancel Online' checkbox.
Or more extensive cancellation options are available from the Online Booking Portal settings page.
From this settings panel you can;
Add a restriction to prevent customers from cancelling a booking X number of hours before check-in.
Configure each booking type offered to allow the booking to be cancelled by the customer online. There is also an additional sub setting that you can set that will give the booking a special status when cancelled, this will allow the booking to continue to appear in financial reports.
The very last setting when enabled will take any money the customer has paid on a booking and add it to their account credit when it is cancelled.
From the Customers perspective they just need to log into the Online Booking Portal settings page, and then click into the booking they wish to cancel, they can then click on the Cancel button in the top right hand corner of the screen.