The term sometimes applies to Europe as a whole, but the Balkans are the specific region known as the Powder Keg of Europe. The region was politically unstable during the years before World War I, and tensions there ultimately culminated in the assassination of Archduke Franz Ferdinand of Austria and the outbreak World War I. The term itself likely originated from a quote by Chancellor Otto von Bismarck of Germany.
Bismarck originally made the comment at the 1878 Congress of Berlin. Greece, Serbia, Montenegro, Bulgaria and Romania had only recently gained their independence from the Ottoman Empire when tension between the countries caused the Balkan Wars from 1912 to 1913, resulting in resentment throughout the region. At the same time, the pan-Slavic movement called for the unification of all Slavic Balkan countries into one nation, even though this meant taking land from the Austro-Hungarian Empire. Austria obviously opposed this, while Russia favored it. The delicate balance of power in Europe that had mostly preserved the peace since the Napoleonic Wars was broken with the emergence of Germany as a nation and the fall of the Ottoman Empire.
The result was that when a Bosnian nationalist assassinated a member of the Austrian royal family, Austria declared war on Serbia, and Russia declared war on Austria to defend its Slavic interests. Germany joined Austria, France joined Russia, and almost the entire world was soon at war.