Planchets are punched from large thin metal sheets. After a section of the sheet is punched, if the sheet fails to be fed far enough ahead, the punch will overlap an already punched area causing that planchet to have a circular "clip" of missing metal. A good way to tell if the coin is an error or simply damage that occurred outside the mint is to look for signs of metal flow into the blank area, which indicates a genuine clip. This will appear as weakness and thinness around the missing metal. There will also often be a corresponding area of weakness on the rim of the opposite side of the coin, known as the "Blakesley effect."
This one has a nice clip at 5:00.