The name comes from Japanese game lingo, where our “blocking” is their “guard”. English-speaking gamers rarely revert to “block” for this particular term, however, probably because “block cancel” sounds awkward. Guard cancel is often abbreviated “GC”.
It may have a special name depending on the game it’s in, but the principle tends to be nearly the same: you will activate a counterattack with a (semi-) invincible hitbox or a special motion like a roll.
Via this, it is possible to try escaping from an opponent’s strings and rushdowns. However, this is a serious advantage, and it will generally cost you something, like say, meter. Therefore, it is not something that can be used at all times or willy-nilly.
In the early days of 2D fighting games, these began to be added in order to keep balance in many games where going on the offense is better (Capcom started with Darkstalkers, SNK started withKOF ’94). It’s not well-known, but the it was actually first introduced in the “death match mode” of the original World Heroes.
However, in those early games, the low-risk high-damage counterattacks caused a lot of turtling to go on (meaning players would actually defend more than attack, making the feature defeat its own purpose – to keep the attacks coming). Also, because the commands were complicated, it raised the learning curve too high for beginners, who should have stood to gain the most from it.
Afterwards, in every game that includes them, adjustments have been made repeatedly; modern forms of guard canceling are the result of much tweaking.
Among the preemptive blocks, there are some that you may cancel the resulting stun with a special move after they have been performed, but one could say that these have their roots in the original guard cancels (not all preemptive blocks allow you to aim for this).