Milestones don't directly affect resource allocation. They are just another element in your schedule (tasks, summary tasks, and milestones). Milestones are scheduled the same way tasks are except they have no duration.
It is likely that the milestone you are referring to was being used as an anchor to prevent an overlap of resources. As an anchor, I mean someone put a constraint on it pushing it into the future to avoid a resource over-allocation. Without seeing an image of your Gantt, I can't confirm this, but that is my thought. This is not the way I would do this.
My preferred method would be to remove the milestone and simply add task relationships that take into account the sequence of work the resource will perform. This will provide for a realistic sequencing of tasks rather than allowing Microsoft Project to resolve the over-allocation. I don't ever want Microsoft Project to make resource leveling decisions for me in my schedules.