We cancelled our Palo brunch about an hour before hand, and there was no charge.
When we called Palo, we left a message indicating that we needed to cancel, and hopefully they could call someone on the waiting list. We received a message later thanking us for calling them to let them know, and in fact, someone on the waiting list was able to go.
I think if you don't show up and the table sits empty, that you would be charged the fee.