I saw this Bas Rutten video years ago, I know this drill is also done in Krav Maga, or something pretty close it.
I started experimenting with it in class quite a few years back and have found it pretty useful for a variety of things, though less as a blocking drill than as a bridge to other uses.
I figured I'd share how I've used this in my class over the years, as I think it is a very useful drill from an applied Karate standpoint.
For beginners, I have the attacker do only rounded strikes while the defender blocks. Once this is established the attacker can add in straights, but the thing is that almost no one will able to stand there and block for long without moving, especially once you add in straights..so that's the next step, take angles by moving towards what is familiar, away from what is unfamiliar, and cutting off half of the attackers weapons.
While it's a nice way to get beginners to move around with a partner, one of the first questions is "why am I just standing here blocking", so some explanation of the larger context of the drill is good at this point.
I do not spend a huge amount of time on the "defense" portion because self defense wise, indeed, just standing there blocking is generally a poor idea, unless your aim is just to practice and improve blocking - which I think is the original purpose of the drill.
Once the basic drill is understood you can bridge into applying technique. One of the ones I do with beginners is to immediately use jodan-uke in the midst of all the hands flying around, which nine times out of ten ends up as a forearm shiver or shuto type motion to the jaw/neck. The basic idea is to have less and less time where the student is just "defending" or blocking, eventually learning how to move with impetus and aggression while positioning oneself for minimal damage. You can of course just have people put on gloves and do the same thing with actual punches, but I've found that sometimes that alone pushes students into a more conservative mode, and this drill is very useful for avoiding the usual conservative responses that can limit learning.
A couple of other things I've done with it:
Set up/execute a throw as the defender, this will teach not only how to naturally enter in with a structure that protects the student from getting hit (i.e. covering "the buttons" while moving in offensively), but to think about "blow before throw", striking before takedowns or throws.
Another fun thing to do with the drill is to set up a multiple opponent scenario, say having two attackers in front of a person positioned against the wall with the goal being to simply find a position where the student is in the least danger. It's hilariously difficult to block in such a situation, and this is a nice way to work the basic positioning without needing protective equipment and in a way that people are generally less intimidated. If they need specific pointers you can give instructions - take the hand position prior to executing a shuto for instance which covers one's buttons and puts an elbow in front of the face-, from there they can simply avoid blows as best they can and attempt repositioning/escape, including any attacks of their own, pushing or moving the attackers etc. With more advanced students of course there are lots of possiblilities.
In short, every time I have used this drill in class people have a ball and learn a lot, and it can be effective for vastly different levels of skill, the chaotic nature of the blows is a big plus of the drill, and can really help remove the issue of trained responses to specific techniques. So I figured i'd share it during this time where we are reminiscing about the fun stuff we used to be able to do:)
The one warning I will give is that it is possible for people to get poked in the eye during this drill if people doing open handed motions, so it is worth mentioning this beforehand so that both defenders and attackers understand what things to be aware of safety wise.