It sounds like you cancelled the bookign yourself @Todd342 instead of getting airbnb to do it for you?
Never ever ever cancel a reservation yourself - you will be penalised. When there is an airbnb glitch, you need to ring Cs and point it out to them and get them to cancel on your behalf, penalty free.
You could try ringing Cs now, after the event, explain what has happened and see if they will reverse the decision.
When you say your August dates 'were supposed to be blocked' what does that mean? If you are confident you had blocked out the dates. Call Airbnb tell them what has happened and ask them to check and see if the dates were blocked. If they were they will cancel the penalty.