FWIW, and I am no expert, but I did some rough research into the world of short selling a few years back with a couple of friends.
Try not to think of short selling as a one dimensional object, with only a single use.
Sure some stock's feel the brunt of an all out short attack, which certainly is a serious event when it occurs, but overall they are not that common, and generally only happen to stocks where are very sick, and in a sector which also well out of favour.
Across the market, short selling also has a number of other uses, the main one being a device to hedge a long position. This hedging can be at any particular percentage (50% hedged for instance, or 120% hedged....whatever you want), and the level of hedging can be adjusted when deemed nessesary.
Another is strategically using short positions (usually in the hedge fund or similar arena). Now this can be a fairly complicated area, so maybe Googling 'long/short strategies', or something like that will help if you want more info.
However, for instance in simple terms, if a fund wanted to hold a large position in the finance sector (for whatever reason), instead of 'just' being long (and leaving themselves vulnerable to uncertain market movements), the fund may choose to use a 'long short' strategy in an effort to profit (or at least be neutral), no matter which way the market moves, and particularly if the market moves in a direction they did not expect.
So an example would be to hold what they believe is the strongest stock in the sector 'long' (CBA for instance), and the weakest stock in the sector 'short' (BEN or BOQ perhaps). And they would be held in a percentage that the fund believed was appropriate at the time (50/50 or 40/60 long short, or whatever....). The idea being that if the sector goes up, the strongest participant will go up the most in the sector, and the weakest will go up the least. And if the sector goes down, the weakest members should go down the most, and the strongest will go down the least. That is the basic idea anyway (no guarantees it will work every time though......stock selection is really important....and sometimes these hedge funds are too smart for their own good). This strategy is also common across different sectors as well - for instance, being long the strongest stock in the strongest sector, and short the weakest stock in the weakest sector. There are many variations.......
There are also some other uses, which are less palatable to retail holders, and involve using short positions to accumulate a decent long position over time, during an accumulation phase.
So when you see the daily short positions, and the short interest in a stock, those positions are not 'just' short position's that on their own are all expected to make a profit, a decent percentage will be held as a hedge, and also in a strategic sense, as part of a particular strategy (which may or may not be successful).
Hope this helps a bit, use google to research further if you want more info.
