Its pretty simple really. If Biggs is attacked and the attacker scores more than three uncancelled hits, you can cancel those hits until there are only two remaining.
Lets say somebody fires a HLC at Biggs and scores 4 hits. Biggs rolls his evades and blanks out; meaning the attacker has made 4 uncancelled hits. Biggs can take two stress tokens to cancel two of those hits. Meaning only two actually go through and deal damage.
Remember however, it only works with hits. Critical hits <kabooms> do not trigger R4-D6. So if you get hit by a 4 dice attack and they're all crits (unlucky!) then the droid is useless.