Nothing destroys customer trust faster than selling a product that turns out to be out of stock. WooCommerce has basic inventory management built in, but there's quite a bit to think about.
The basics
Under each product: enable "Manage stock". Enter quantity. WooCommerce counts down automatically on purchase and can show "X in stock" on the product page. The low stock threshold sends a notification to admin (default 2, change under WooCommerce → Settings → Products → Inventory).
Backorders
Allow or don't allow. If you allow backorders, be clear with the customer about lead time. "Delivery in 2 to 3 weeks" is better than the customer thinking the product ships tomorrow and then waiting.
Sync with physical inventory
If you have a physical store or sell via multiple channels (WooCommerce plus Amazon plus physical), inventory needs to sync. ATUM Inventory Management (free plugin) gives better overview and import/export. TradeGecko (now QuickBooks Commerce) or Finale Inventory handles multi-channel.
Reports
WooCommerce → Reports → Inventory: shows low stock products, out of stock, and best sellers. Simple data but sufficient for most. Need more advanced analysis? Export to CSV and analyze in spreadsheet or connect to Google Data Studio.
Stocktaking
Do regular stocktakes. Even with automatic inventory management, discrepancies can occur: manual adjustments, returns not properly recorded, shrinkage. Once a quarter minimum. Export inventory value before and after, compare the difference.
Inventory management isn't glamorous, but it's one of those things that determines whether e-commerce works in practice.