The term originated in a counter-mine dug by defenders to defend against the undermining of a fortress's walls during a siege. The defenders would dig a tunnel under the attackers' tunnel. An explosive charge would be set off to create a camouflet that would collapse the attackers' tunnel.
More recently, the term has been used to describe the effects of very large bombs like the Grand Slam bomb, which are designed to penetrate under a structure and create a camouflet to undermine the foundations of very large structures.