Bond of Blood – Harry Potter Lexicon

"Your mother died to save you. If there is one thing Voldemort cannot understand, it is love. He didn't realize that love as powerful as your mother's for you leaves its own mark. Not a scar, no visible sign... to have been loved so deeply, even though the person who loved us is gone, will give us some protection forever. It is in your very skin."
-- Albus Dumbledore to Harry (PS17)

The Bond of Blood is an extremely powerful ancient magic which is formed when a person sacrifices himself or herself for a family member, out of love. The sacrifice creates a lingering protection in the blood of the person who was saved. It is not activated, however, until the charm is actually cast, and it is not sealed and functioning until another member of the family accepts the saved person as his or her own. As with most ancient magic, the bond of blood is mysterious and very strong and is not completely understood by most wizards.

References from the canon

Dumbledore decided to use the bond of blood to protect Harry against Voldemort. He cast the charm on Harry, and Petunia sealed it when she agreed to take Harry into her home. As a result, Harry is protected as long as he can call the Dursleys' house his home.Some have wondered why it was Lily's sacrifice which created the charm and not James's, or for that matter, why the ancient magic is not in effect every time someone dies for another person. The true nature of the charm is that it requires intentional spellcasting on someone's part to activate the magic and it also requires the decision of a family member to seal it. Without these two things, the magic does not happen. These two required components are clear in OP37 (emphasis SVA's):

But I knew, too, where Voldemort was weak. And so I made my decision. You would be protected by an ancient magic ... I am speaking, of course, of the fact that your mother died to save you. She gave you a lingering protection...a protection that flows in your veins to this day. I put my trust, therefore, in your mother's blood. I delivered you to her sister, her only remaining relative...She took you, and in doing so, she sealed the charm I placed upon you. Your mother's sacrifice made the bond of blood the strongest shield I could give you ...

While you can still call home the place where your mother's blood dwells, there you cannot be touched or harmed by Voldemort. He shed her blood, but it lives on in you and her sister. Her blood became your refuge. You need return there only once a year, but as long as you can still call it home, whilst you are there he cannot hurt you.