In marketing, cannibalization is the decreased demand for an existing product that occurs when its vendor releases a new and similar product. For example, when Hewlett-Packard puts out a new printer, they realize that older printers will suffer some erosion of sales or market share; that erosion is referred to as cannibalization.
Marketing borrows this term from hardware, where its meaning is similar to the original one, in which a person or animal eats the flesh of another member of its species. In hardware, cannibalization is removing a part from one machine (for example, an airplane, a car, or a computer) to replace a bad part in another machine. Typically, the part removed is functioning, the system it's removed from is not, and the part's addition will contribute to the functioning of the newly refurbished system.