Common allowance items: interior finishes (flooring, paint colors, light fixtures), appliances, plumbing fixtures, hardware. The bid documents specify an allowance amount; the contractor includes it without specifying the exact product.
When the owner selects the final product, the actual cost is compared to the allowance. If the actual is higher, the contract price increases by the difference; if lower, the contract price decreases. Watch the markup math: allowances usually don't carry the contractor's full markup until reconciliation.
Don't confuse allowances with contingency. An allowance is for a specific item with uncertain cost; contingency is a general buffer for unforeseen scope. Both appear separately on the schedule of values.