The school I hear to appeals for gets allocated 120 pupils by the LEA. They know that they can fit 32 in each classroom, therefore can take 128. Now, some children will drop out as they get offered places elsewhere - private & state (and win appeals elsewhere) and the school then offers more places.
I'm impressed by "The letter also goes on to state that they want to make sure that anyone admitted can keep up with the pace of grammar school". Occasionally parents don't think of this, and it is worth pointing out.
My question though is whether we need to address the first question of oversubscription"
I'd mention it in passing and not make a big thing about it - the panel will be aware of it, and may not like having statistics thrown in their face. Possibly the best thing to do is have the stats with you, ask them if they would like you to talk about them, then sigh with relief when they say 'no' (and they'll do the same).
I'm a bit confused as the school must have been aware that they weren't oversubscribed when this letter was written. Do you they just mean that if all the appeals were allowed they would then be oversubscribed?
Yes, they were at official admittance capacity when they wrote the letter, but may be able to take more. They would be oversubscribed if all got in, and there would be nothing they could do about it - but, of course, they'd get more money and might be able to cope (but lack of classrooms would be interesting). That's partly why only so many will succeed.
Oh, and biggest tip - be nice to the panel. It is scary to some (I've seen lots of parents in tears, both male & female) but I always try to relax the parents, natter about musical abilities of the child (which I know a bit about , and the parents tend to chat more freely about) - even though it's normally irrelevant to the appeal! We try to be as nice as possible and give you as much time as you need (but we can get fed up after 40 minutes of going round in circles).