You must first limit capacity in the Event record in The Raiser's Edge.  The Event Registration Form (Classic) needs to then be set up to Restrict registrations to capacity.  The Event Registration Form now is linked to both The Raiser's Edge Event record's registered user count as well as those registering online.  Registrations that are not processed through the plugin are counted this way and do not need to be processed for the Event Registration Form (Classic) to show Sold Out.