"Intercept Blow" can only block Basic Attacks made on a unit adjacent to the unit with this Ability.
This means it cannot block damage from things like Whirlwind or Long Shot, as these are not Basic Attacks. Damage from other things like Tactics or from end game Prep Area penalties and also not Basic Attacks.
"Intercept Blow" must take the entire amount of damage.
Say that a unit is hitting your archer for 4 damage, and your archer has 2 HP. The unit with Intercept Blow would have to take the full 4 damage.
Likewise, if the unit with Intercept Blow only has 1 HP, and Intercepts a 4 damage hit, it will Intercept all 4 damage (its basically jumping in the way of the entire attack).
"Intercept Blow" can only be used once per turn.
If a Beast is adjacent to 3 of your units (let's say 2 Archers and a Defender), and performs a Basic Attack (which hits all 3), your Defender can only use Intercept Blow to take the damage from one of the 2 archers (provided the Defender survives the hit to himself first).