Free Step Dodge

To cancel is pressing the hold/block button right after you performed a attack, to input another move to extend the combo.

Under normal circumstances, it it the act of canceling a normal move into a special move or a super move. That is to say, you are "canceling" your normal attack animation into a special-type move (i.e. projectile, or... any move that requires an elaborate stick/pad input and a punch or kick of the corresponding move).

From a 2D fighting game example, here is Ryu from Street Fighter: cr.Heavy Punch ~ cancel QCF+P (Hadouken). Something like this also used for the likes of Mai (as she is a KOF character). As such, some of her strings will cancel into her "special moves". Example: 6PP~214+P (Ryuuenbuu).