The fallback site
The fallback site is where a line goes when the stock hard gate leaves nothing — no eligible site has stock for it.
What it is not
It is not a general default for orders the rules find difficult.
That distinction matters because the two situations look similar and are handled completely differently. If your rules narrow the candidates to several sites and never get to one, the engine still has candidates to choose among — it has not exhausted. The fallback is only reached when there are no candidates left at all, because nobody has the stock.
Setting the fallback expecting it to catch ambiguous orders will disappoint you. It catches impossible ones.
Why it is required
A rule set cannot be activated without a fallback site. The activate button stays disabled until you pick one.
The reason is that the alternative is worse. Without a fallback, a line nobody can fulfil has nowhere to go, and an unassigned line does not reserve its stock — so it sits unprotected while someone works out what to do with it. See resolve an order in review.
Forcing the choice up front means every order lands somewhere, even the impossible ones.
Choosing one
Pick the site best placed to deal with a line nothing else could fulfil. In practice that usually means your main warehouse: the one most likely to receive stock soonest, and staffed to notice a line that should not be there.
A small shop is a poor choice. Lines will arrive that it cannot fulfil and may not have anyone watching for them.
What happens to a line that lands there
It is assigned like any other, and its fulfilment group behaves normally. The difference is that you know the line arrived because nothing could fulfil it, so it needs a decision — restock, back-order, or cancel — rather than picking.