Why lorem ipsum rather than real text
Placeholder text exists so that people looking at a design assess the design. Fill a mockup with real copy and the conversation turns to the wording. Fill it with "content content content" and the block does not look like prose at all — the word lengths and rhythm are wrong, so it does not tell you how the layout will really behave.
Lorem ipsum sits between the two: it has the letter frequency and word length distribution of Latin, which is close enough to English and most European languages to make a paragraph look like a paragraph without being readable.
Where it came from
The text is a scrambled passage from Cicero's De finibus bonorum et malorum, written in 45 BC. It has been used as printers' filler since at least the 1500s, and reached modern design through Letraset sheets and then desktop publishing software.
When not to use it
Do not use it to test text that must be real: form labels, error messages, navigation and headings all need genuine copy to be evaluated. And never let it reach production — "Lorem ipsum" appearing on a live site is a recognisable and avoidable embarrassment. Searching a codebase for "lorem" before a release takes seconds.
It is also worth testing your layout with text in the languages you actually support. German compounds are long, Arabic and Hebrew run right to left, and CJK text has no spaces — all of which break layouts that only ever saw Latin placeholder text.