1.  telling someone to ignore, forget, or disregard what was just said or instructed.

  (idiomatic, usually as imperative) To disregard, omit, or ignore the previous statement.

it's pretty much only used when you are talking and you made a mistake.

"There were forty -- scratch that -- four hundred people at the party"

2. To scratch is also to decide not to do something that you had planned to do; to cancel:

We were going to remodel our kitchen, but we had to scratch that when I lost my job.