V-canceling is the act of reducing the X & Y knockback velocity of a received attack by 5%. The player receiving the attack must be in the air when the collision between the hitbox and hurtbox occurs. The receiving player must press the L or R button fully within 3 frames of the attack.
(L or R) within 3 frames
Demonstrating the benefits of V Canceling. Notice the left character does a V Cancel, and thus survives Fox's up smash.