A unit has its own reserve of ammo, fuel and so on. It must replenish it though.

The supply is literally a vehicle with ammo and fuel that is passing from the unit to a supply depot. If this truck is destroyed the unit will not receive any ammo and won't have the possibility to attack.

Moreover supplying depots are joined to the net by roads. If a road is cut by the enemy certain depots' reserves will end and the units will not receive ammo and fuel. Their efficiency will drop to zero.

So supply lines are extremely important in Panzer Strategy as well as maneuvering.

Build your supply system, maneuver to cut the enemy supply lines in order to exhaust him and destroy!