It's the title of a classic Joseph Heller novel about World War II, published in 1961 and adapted for film in 1970. Heller invented the term to describe absurd, impossible-to-escape situations; he actually uses it rather loosely, so that it can cover almost anything.
The main statement of the concept:
There was only one catch and that was
Catch-22, which specified that a
concern for one's own safety in the
face of dangers that were real and
immediate was the process of a
rational mind. Orr was crazy and could
be grounded. All he had to do was ask;
and as soon as he did, he would no
longer be crazy and would have to fly
more missions. Orr would be crazy to
fly more missions and sane if he
didn't, but if he was sane, he had to
fly them. If he flew them, he was
crazy and didn't have to; but if he
didn't want to, he was sane and had
to. Yossarian was moved very deeply by
the absolute simplicity of this clause
of Catch-22 and let out a respectful
"That's some catch, that Catch-22," he
"It's the best there is," Doc Daneeka
Some other examples:
Catch-22 states that agents enforcing
Catch-22 need not prove that Catch-22
actually contains whatever provision
the accused violator is accused of
Catch-22 says they have a right to do
anything we can’t stop them from
Catch-22 is an enhanced version of the classic "Damned if you do, and damned if you don't."
Now, how widely known is the phrase? In the United States, very nearly universal - even among people who've never read or heard of the book and movie. In the rest of the English-speaking world? I have no idea...
Even if people don't fully understand "catch-22" they probably get that it means basically "to be stuck between a rock and a hard place".