I think I know the answer but I'm curious if I'm correct.

There are a lot of very knowledgeable people on here when it comes to set-up's, pricing, marketing etc.

Do the online agencies check flights and routes that they think there will be a future demand for (that they can make money on) and when flights become available and/or perhaps drop in price, do they do a block/group booking for x-number of seats (say 10-20 on a flight) and I know that some airlines allow you to submit the names of people travelling as late as 24-hours before flying to the airlines (as a privilege of a group booking compared to a normal booking submitting the names when booking and paying)? which then means they have a block of seats reserved on a service and they can re-sell them on in the future for profit (I've noticed that the formula tends to be somewhere in between when the tickets were at their cheapest and a discount on what they are at any given time going forward - maybe stating the obvious there).

Maybe I've answered all my own questions and maybe it's obvious - but I'd just like to know - especially if I've got it wrong and it's done another way?

OTA do not purchase and resell seats. You book a seat/ticket with airline in question through the OTA.

I would not be surprosed if travel agents (either on line or brick & mortar) buy blocks of seats, rooms, etc. to resell including as parts of agency specific travel and tour packages.. The airline or hotel gets advance nonrefundable revenue in exchange for a bargain price for the agency. The agency price might not be less than the airline's lowest price at IPO but might use up all of the seats in the lowest bucket for a given flight.

From various complaints on forums such as Flyertalk I conjectured that airline schedule changes resulted in passengers try to reselect flights and travel agencies arguing about rebooking to a flight that also had a block of seats bought with some remaining versus having to go outside the box and book what the customer had as his real second choice leaving the agency with a block seat coming back and having to be re-resold.

Block booking seats was apparently done in the distant past, maybe as late as the '70s or maybe even '80s, when wide-bodies first appeared, many airlines rushed to buy them, and subsequently had huge amounts of seats they couldn't sell. At that time, fares (and even inflight service offerings) were regulated by IATA which may have dampened demand (I distinctly remember the cheap APEX (advance purchased excursion) fares for LHR-SIN R/T running ~ GBP 350 in the mid/late '70s while LHR-HKG was fixed at GBP 500 (pretty much pick an airline, any airline). A travel agency (by the name of Eupo-air) in the U.K.(or maybe H.K. which was the same thing back then) catering to the HK market used to buy blocks of seats on BA aircraft (rear section of 747s) to resell. Airlines also sold seats that they'd expect to otherwise go empty through what were known as bucket shops or consolidators.

With rise of better distribution (e.g., better distributed reservations and sales) and less-rigid pricing due to air fare deregulation, the need by airlines to do such has largely disappeared, as have these types of fares.

That said, the unsavvy hear about this past history and believe such types of fares still exist and get taken by less-than-reputable OTAs.