According to MentalFloss.com, the term goes back to World War 2. It was a type of bomb that was so powerful it could decimate a city block.
The name caught on, and people started using it to describe anything explosive or extravagant.
At first, “blockbuster” was used to describe films that were “bold or noteworthy.” In 1943, “Time” magazine said critics were calling the movie “Mission to Moscow”, quote, “as explosive as a blockbuster.”
But pretty soon it became synonymous with box office success. In the 1950s, a producer named Max E. Youngstein had defined a blockbuster as any movie that grossed over $2 million.