Blocking is the act of defending oneself. It is also known as “guard” (which is the common term for blocking in Japan, hence many special blocking mechanisms having the word “guard” in them).
When blocking, you will not take damage for the most part. In 2D fighting games, however, it should be noted that blocking attacks that are special moves or super special moves, etc. will result in taking chip damage.
In games that implement a “guard crush”, blocking most moves will accumulate guard crush values (typically in a guard gauge); when one reaches the appointed value, their “guard” will be “crushed”, leaving them temporarily open. The intention of this system is to discourage over-reliance on blocking (though it does not render blocking completely useless, of course).
The strategy of keeping up a block and watching the state of things is known as turtling; however, a proper blend of overhead and low hitboxes will make blocking their attacks more difficult. Attempting to cut through an opponent’s block in this fashion is known as mixup.
In most 2D fighting games, one performs a block by holding back (command ; high/standing block) or down and back (command ; low/crouching block) when an attack is headed his way.
In general (but not at all times, and certainly not in all games), one should block standing when the opponent is in the air, and crouching when the opponent is on the ground. A standing block is susceptible to low hits, whereas a crouching block is susceptible to overhead hits.
Thus, one should block standing when the opponent is in the air (and if one must block; e.g., if there is no opportunity to use an anti-air move or a jump checker), because at that point the blocker’s concern should be crossup (where the defender does not know exactly which side the opponent will land on to continue attacking) and not mixup (where the defender does not know whether the opponent will attack high or low, or even attempt something else). Moreover, most jump attacks do overhead hits, which means a crouching block will most likely not block the attack of an airborne opponent.
Likewise, when the opponent is on the ground (and if one must block), one should block crouching, because the concern is mixup; since most overhead moves on the ground have slow startup, one often has sufficient time to switch to a standing block if it is necessary; plus, a crouching block will block low hits and other non-overhead hits, as well as evade hits that are too high.
As with all basic fighting game techniques, there is a temptation for beginners to rely on blocking too much. Unfortunately, this is the kind of thing an opponent will catch onto very quickly. The key to avoiding this cardinal sin is to aggress one’s defense via proper zoning and other parts of general conduct, and only block when one feels the need to.