Real hardware stores numbers in a fixed number of bits. When a result doesn't fit, the extra high bits are simply dropped and the value wraps around, like a clock going from 12 back to 1, or an odometer rolling from 999999 to 000000.
In n bits, arithmetic works modulo 2ⁿ: adding or subtracting 2ⁿ never changes the stored pattern. In 4 bits:
1111+ 1 =0000(15 + 1 wraps to 0)0000− 1 =1111(0 − 1 wraps to 15)
Picture the 16 four-bit patterns arranged in a circle. Adding moves clockwise; subtracting moves counterclockwise.
Wraparound isn't a bug in itself. It's what makes twos complement work: one step back from 0000 lands on 1111, which is why 1111 means −1. And because adding 2ⁿ − x lands in the same place as subtracting x, an adder can subtract.
It becomes a problem when you didn't expect it. Crossing the seam between 1111 and 0000 is unsigned overflow; crossing the seam between 0111 and 1000 is signed overflow. Both happen silently unless you check the status flags.