What does the "__block" keyword mean?

What exactly does the __block keyword in Objective-C mean? I know it allows you to modify variables within blocks, but I'd like to know...

1. What exactly does it tell the compiler?
2. Does it do anything else?
3. If that's all it does then why is it needed in the first place?
4. Is it in the docs anywhere? (I can't find it).

It tells the compiler that any variable marked by it must be treated in a special way when it is used inside a block. Normally, variables and their contents that are also used in blocks are copied, thus any modification done to these variables don't show outside the block. When they are marked with __block, the modifications done inside the block are also visible outside of it.

For an example and more info, see The __block Storage Type in Apple's Blocks Programming Topics.

The important example is this one:

extern NSInteger CounterGlobal;
static NSInteger CounterStatic;

{
    NSInteger localCounter = 42;
    __block char localCharacter;

    void (^aBlock)(void) = ^(void) {
        ++CounterGlobal;
        ++CounterStatic;
        CounterGlobal = localCounter; // localCounter fixed at block creation
        localCharacter = 'a'; // sets localCharacter in enclosing scope
    };

    ++localCounter; // unseen by the block
    localCharacter = 'b';

    aBlock(); // execute the block
    // localCharacter now 'a'
}

In this example, both localCounter and localCharacter are modified before the block is called. However, inside the block, only the modification to localCharacter would be visible, thanks to the __block keyword. Conversely, the block can modify localCharacter and this modification is visible outside of the block.