The notion of consumption in inventory management refers to the process of one time series having open quantities that are reduced as values appear in another time series.
In practice, this most commonly refers to Replenishment Forecast being consumed by Independent Demands from your sales. Dependent Demand, such as expected consumption of a component due to a Work Order or Transfer Order, is not included.
For example, if you have a replenishment forecast of 100 per month, it is expected that over time, your forecast will turn into actual firm demand orders. As this happens, you don't want to continue to predict that you will still have 100 units of forecast, you want to consume down the forecast as it becomes reality, so you are not double counting for demand as time goes on.
Consumption of forecast by firm demand is usually allowed within certain range of times, details for which are controlled in the replenishment forecast settings.
The idea of consumption is also used in the Estimates feature, where the amount remaining on an estimate is consumed down as those firm orders come in.