Reserve is a restriction that is automatically added to your account when you use a non-guaranteeable payment method, such as Paypal and Skrill. When you get reserved, xat stops a portion of your xats from being transferred or being used in unbalanced trades (when the value you are giving away is much greater than what you are receiving).
You get reserved when using payment methods that are not "guaranteed payments" which means the payment can later be taken back (i.e. charge-backed). This is put in place to stop users from buying xats then giving them all away, making it harder for xat to track down these xats and get rid of them, and to stop the user from selling all of the xats for profit then taking back the payment. It also has the added benefit of some protection against Phishing.
xat will only reduce/remove your reserve if it is an absurd amount which would leave you waiting a long period of time before all of your xats are available to be spent. Your reserve will also reduce over time, eventually leaving all your xats cleared and freely transferable.
You can still use your xats, without restriction, on official features such as promotion, short names, and buying groups. You can also freely buy powers from xat's buy page. While reserved, you are capable of using the trade engine (see: Trading).