The cancellation policy might simply be some boilerplate that does not really apply in this case or maybe something Booking.com adds to all property descriptions but that they make no effort to enforce (or leave the hotel to enforce).
After all, it's the way many hotels have been working for a long time. Before Internet booking (and therefore the possibility to collect credit card details easily) became ubiquitous, it was not uncommon that a room would be kept for you until a certain time (say 7) and could be sold to someone else if you hadn't showed up (or possibly phoned) in time.
Obviously, being able to hold onto credit card details and recover the money directly is easier than pursuing legal remedies but it does not really make a difference on whether or not you owe the hotel some money and a certain number of no-shows, theft, vandalism or non-payment is part of the costs of doing business.