Satish,
1. In product allocation check, if the system finds a CVC but there is no allocation maintained for this CVC, will the system assume that there is zero allocation for this CVC?
Yes, it will assume zero allocation
2. If the CVC cannot be found and if the system also cannot find a CVC based on collective characteristics, then it will be a hard error returned in the sales order.
Assuming you have set up the product master for allocation, and then you don't assign the Material to a CVC (this would be illogical, but possible I suppose,,,,,), the system will indeed return an error. However, it does not generate a 'dump', it merely prevents confirmation of the sales doc item.
Best Regards,
DB49