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Hypovolemic hyponatremia occurs when there is a decrease in the total volume of blood plasma, leading to a lower sodium concentration due to the loss of both water and sodium, with the loss of sodium being greater. This state is not merely a dilution effect as seen in other forms of hyponatremia; instead, it directly results from fluid loss in conjunction with a disproportionate loss of sodium.

In cases such as diarrhea, vomiting, or excessive diuretic use, the body loses fluids along with sodium. If sodium loss exceeds water loss, the overall sodium concentration in the blood decreases, resulting in hyponatremia. It highlights the importance of maintaining both fluid and electrolyte balance, specifically sodium, for proper physiological function.

Other options do not characterize hypovolemic hyponatremia accurately. Increased sodium retention would typically lead to hypervolemia. Water retention could cause dilutional hyponatremia but not hypovolemic hyponatremia. Equal loss of sodium and water usually results in isotonic conditions rather than the specific electrolyte imbalance seen in hypovolemic hyponatremia.