The number of guests attending a party affects the amount of food, drinks, favours and even seating needed for the event. Let the host know that you will be unable to make it to the party in a polite way that will ensure you are invited to future events and your host doesn't spend more money on party supplies than necessary.
Decline the invitation in the way instructed by the invitation. Send a quick e-mail or call the host if the invitation says to RSVP in one of these ways. Talk to the host, don't leave a voice mail, if declining by phone. Send back the response card if one is included with the invitation. However the invitation instructs you to respond is the polite way to decline the invitation.
Keep your declining response to the invitation brief. You don't need to include a lengthy explanation of why you are declining. Write a brief note expressing your regret at not being able to attend and a simple thank you for the invite. Keep your explanation very brief, such as simply saying you have a prior engagement, if you must give an explanation.
Decline the invitation in a timely manner. Do not wait until the last minute to respond to the invitation with your decline -- do so as soon as you know you will not be able to attend.
Let a host know that you cannot attend the party, even if the invitation indicates that you don't need to respond.