The Brokerage firm will purchase shares for the dividend paid in a omnibus account for the security of the issuer and then they will distribute fractional shares among all their clients that chose Div Reinvest. They will only have to buy 1 extra share to account for the fractional portion of what they allocate.
The structure of the market does not permit trading of fractional shares. There is generally not any impact to the market place for Div Reinvest with the exception of certain securities that pay large dividends that are not liquid. sometimes this occurs in preferred securities where a large amount of Div reinvestment could create a large market order that has market impact. Most brokers place market orders for the opening on the day following the payment of the dividend.
When you sell the fractional portion same process as full shares are sold into the market and the fractional if traded between you and the brokers omnibus account. if it creates a full share for the broker (omnibus has .6 shares and you sell him .5 they would likely flip that out to the street with the full share portion of your order.
This would not have impact to outstanding shares and all cost are operational and with the broker handling the Div reinvestment service.