When batch tracking is enabled for an item, then all the quantity you have "In stock" for this item must belong to a particular batch.
In certain situations, you might have a number of items in stock for which you have not assigned any batch numbers, although batch tracking is enabled for that item. This quantity is assigned to a batch called "unbatched".
Do not let yourself get confused by the batch name "unbatched". Technically, this is still a batch in Katana. It behaves exactly the same way as any other batch with a proper batch number. You can add and remove items from this batch, and select items from this batch for any stock movement.
When are items assigned to the "unbatched" batch?
When you enable batch tracking for an item that already has a positive quantity "In stock". The existing stock quantity is allocated to the "unbatched" batch.
When you complete a Sales order (SO) with a Make to Order Manufacturing order (MO) attached to it, and the MO uses batch-trackable ingredients, the ingredients are automatically taken from the "unbatched" batch. This also applies to a situation where the SO is completed via order fulfillment status sync from your e-commerce channel (e.g. Shopify, WooCommerce).
The "unbatched" batch can have a negative stock quantity.
Read more about assigning batch numbers to "unbatched" items.