The history behind the concept of Blocking can be seen from Wikipedia's article about blocking in the theatre.
"Blocking is a theatre term which refers to the precise movement and positioning of actors on a stage in order to facilitate the performance of a play, ballet, film or opera. The term derives from the practice of 19th Century theatre directors such as Sir W. S. Gilbert who worked out the staging of a scene on a miniature stage using blocks to represent each of the actors. (An example of this can be found in Mike Leigh's 1999 film Topsy-Turvy.)"
For animators it's basically the same. Blocking is the stage where a character's gross movements, timing, and poses are created. This can be done to aid with the visualisation of the film or to examine the overall timing of the film. It can answer questions such as how long will it take for a character to walk across the stage or how close does a figure need to be next to a table to be able to pick up an item.
In CGI, this step can be used as a work in progress, for stop motion animators it could be done as a rough shoot at a reduced frame rate and for drawn animation sketches or storyboard pages can be used. In all cases the models and sets used can be a lot simpler than the final versions. The number of shots/drawings/key frames need will vary on the the type of motion.
A related term to blocking is "beats", this is described by Jason Ryan:
"What are beats or phrases?"
"The simplest way to think about beats or phrases is, any major change in emotion or attitude in a shot or sequence is a beat or a phrase. So say you have a character, he starts out happily walking down the street, he's minding his own business, someone from behind steals his wallet, he is shocked but his shock turns to anger as he runs after the Thief. This could be broken down into three phrases or beats - the guy happy, then shocked at being mugged and last angry."
As you can see, the beats can be used as an input to drive the blocking process, affecting pacing and motion of the character. You should be able to see these beats in the your blocking version. Once you are happy with your beats and blocking then you can fill in the subtleties, secondary animation and other details.
Links
Justin Barrett provides a good example of how a scene is blocked out for CGI and then the lipsync and detail added later.
Adam Sale also has a more detailed scene blocking tutorial.
Acertijo3D blocking example on YouTube
Quotation provided by kind permission of Jason Ryan Animation, who provides Models and Tutorials for Maya.
