This feature allows other layout items (such as scalebars, north arrows, inset maps, etc) to be marked as "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!)