My reading on propolis is that it's a sticky sap collected from tree buds in spring. It may be that the tree buds is just one source of it though.
With the entrance reducer, I put it in the hive in the fall and yet in early spring when I remove it I'll find it's well glued into place with propolis. From what I've observed I'm pretty sure the bees scrounge it from other parts of the hive to use in a spot where it's needed most.
Now, with summer just starting to take off and the warmer weather here, I have a couple of swarms that I collected into hives. These hives don't have a surplus of propolis because they're newer.
Whenever I have a clump of propolis on my hive tool and that I've removed from a hive, I never throw it out. You can actually make an antiseptic ointment from it for one thing and for another, the bees can reuse it.
I'll leave a glob of it in the bee yard. As you'll see from the video, the worker is very happy to have found a supply of the stuff already on hand. You'll see in the video how with great enthusiasm the worker chews pieces of it off the lump and attaches them to her back legs.
Throughout the day I observed her coming back several times and over the next few days the size of the lump got considerably smaller.
The bees mix propolis with bees wax and use it as caulking in their hives. They can fill holes where drafts and rain come into the hive. The substance is antibacterial and anti fungal so it also serves as a way to help keep the hive sterile. There have also been some reports that it's believed propolis helps to reduce disease for the bees.
It makes sense. The bees always know when they've found something good.