Castle nearly losing odd bits in overcrowded area (7)
I believe the answer is:
rookery
'overcrowded area' is the definition.
(rookery can mean an area dense with housing)
'castle nearly losing odd bits' is the wordplay.
'castle' becomes 'rook' (synonyms).
'losing odd bits' means one should take alternating letters (letters in odd-numbered positions removed).
The alternate letters of 'nearly' are 'ery'.
'rook'+'ery'='ROOKERY'
'in' acts as a link.
(Other definitions for rookery that I've seen before include "Breeding colony of birds, also of seals or turtles" , "Seal, penguin, colony" , "Nesting-place" , "Noisy bird colony" , "Community of birds" .)