What does it mean when the upc label of a cd is punched?

It signifies one of a few things. Either the CD was a promotional item and not meant for re-sale(thus not counting towards Soundscan numbers), it was discontinued, or,(and this is the most common case) it was an over-stock and reduced in price for sell-through purposes. Destroying the barcode allows for the store to price the CD lower than they have listed on their systems and hopefully get some kind of return on their cost for stocking the item. This generally only happens when both the store and the distributor have mass quantities of an album in overstock.
 
they do that on lps a lot. i was discussing why they might do that with my mate last week. we were in a collectors shop and the guy behind the counter was standing there with a hole punch putting holes in the top corner of lp cases.....

i don't know why they would do that in the collectors store as they are all second hand anyway!
 
I work at a store where they sell cds. Usually we'll get cds with hole-punched upcs, or with small cuts in the spine of the cd holder. it means that they're for store use, no resale. mind you, half the stuff we get like that isn't good to play in the store, so the employees get to take them home.