Retainage is the percentage of the committed payment for the purchase order that is withheld for a specified period (usually until the transaction completes). For example, if you create a voucher for 100 dollars with a retainage of 5 percent, the actual payment will be 95 USD, with 5 held as retainage. You should set up the processing options of Match Voucher to Open Receipt to be able to specify the retainage percentage or the retainage amount as a default value in the Voucher Match program (P4314).
Setting up retainage will allow the system to retain a percentage of the total bid, which a contractor (or subcontractor) pays upon submitting a bid for work. It is considered insurance, and a "good faith" tool. It is a way for public institutions and general contractors to ensure that a company they are entering into an agreement with is solvent, insured, and will be around for the duration of the project. When you activate retainage, the system will start holding a certain amount or percentage from payment as a retainage amount.
The Withholding Percentage can also be set up in the supplier master information, on the tax information tab.