This feature allows other layout items (such as scalebars,
north arrows, inset maps, etc) to be marked as a blockers for
the map labels in a map item. This prevents any map labels from
being placed under those items - causing the labeling engine
to either try alternative placement for these labels (or
discarding them altogether)
This allows for more cartographically pleasing maps -- placing
labels under other items can make them hard to read, yet without
this new setting it's non-trivial to get QGIS to avoid placing
the labels in these obscured areas.
The blocking items are set through a map item's properties, under
the label settings panel. The setting is per-map item, so you can have
a scalebar block the labels for one map in your layout and not others
(if you so desire!)