Life (aka HP, health, stamina, etc.) is a representation of the physical energy one’s character has left.
In most fighting games, one scores a knockout by taking the opponent’s life down to nothing. Also, in most fighting games, this determines the winner when a round timer runs out.
There are very few instances that allow one to recover any of this during combat (in any significant amount, anyway). Usually it is a move belonging to a specific character or an item thrown on the field, and even then, it is usually a pretty big gamble in the vast majority of opportunites.
In games where you fight with individuals on a team, you often do regain some life when a round finishes (like inKOF ’94–2002), or when you put a character on the sidelines (like in the Marvel vs. series).
The life bar is a kind of meter that exists in almost all fighting games; they are usually placed at the top of the screen (horizontally, with the visibly vivid value diminishing towards the center), as in Yie Ar Kung-Fu.
In the original Street Fighter, there were two lifebars stacked one on the other (for a one-player game, the player’s bar is on top, and the computer’s bar is beneath it; for a two-player game, the first player has it on top, and the second player has it on the bottom). Both of them depleted from right to the left.
In some games (like the original Fatal Fury), the bars would deplete towards the edges of the screens (or is that they are accumulating damage? This can be philisophical sometimes...).
In some games, two characters may share a life bar (World Heroes 2 Deathmatch Mode), or they may have separate ones displayed in the same location (Juni & Juli or in Street Fighter Alpha 3).
It is worth noting that Art of Fighting allowed you to increase the capacity of the lifebar in one of the bonus stages.