The points are deducted from your point balance at the time you make the reservation.
If you cancel at least 31 days prior to check in the points will be returned to your account without any restrictions. If you cancel between 30 days and 1 day prior to check in the points go into the holding account and can only be used for reservations made 60 days or less in advance. If you cancel on/after your check-in day the points are forfeited.