Can an eBay seller really cancel a transaction?

Sellers can cancel eBay transactions, so it sounds like you did the right thing and you encountered a friendly seller who was willing to give you the benefit of the doubt and cancel your transaction so that you aren't obligated to pay them and they aren't obligated to pay the eBay closed auction fees. They just relist their item (for free) and everyone gos on their merry way.

Here's how this all looks, from a buyers perspective.

The first notification you get is probably via email. Here's what I got when I recently had a seller cancel a transaction I was involved in. Ironically, I too won multiple auctions, one for a lot of books and the other for a now duplicate copy of the same book:

I am inherently skeptical of any email from eBay because of the never-ending stream of phishing and hacking attempts I see, so I won't even click on these links after inspecting the message and ascertaining that it sure looked legit.

Instead, I just logged in to the eBay site, then went to "My eBay" "Summary":

It immediately showed me a pending eBay Alert, which was the same transaction:

Okay, so at this point I figure it's probably a legit request. :-)

I clicked on "Take Action" and entered a response for the record:

A click on "Send response" and the transaction is canceled:

That's all there is to it.