Well, technically you don't HAVE to cancel reservations for dining UNLESS it is one of the restaurants that requires pre-payment or a credit card guarantee. Unless you don't mind pre-paying, not going and losing your money. Just kidding.
We are booked at the California Grill which is a CC guarantee. We have to cancel 24 hours before or we will be charges $10.00 per person on the ressie.
As far as other places, I ALWAYS cancel if I know I'm not going to dine there. Even if it is the morning of, an hour before or a month before. Someone will ALWAYS get lucky and get the cancelled ressie. People call Disney Dining all the time to see if there are any new openings. Also, I am sure there are lots of folks who walk up that don't know about Disney's ADR system or just walk up "hoping" they get lucky.
Another example - I have been calling to try to get Cape May Cafe for 8/26. No luck yet. I am planning on walking up to the restaurant right when they open for dinner to see if we can get a table. I do have a back up plan in case that doesn't pan out either. And I will keep calling.
So, if you know you are not eating somewhere, cancel as soon as you can so that someone else can have the ressie.