The way the Government works in this, and all other Westminster-style governments, is that it is chosen by Parliament. The People of this country don't vote directly for the government, rather they vote for the House of Commons, who in turn 'choose' a government. However obvioulsy, now a days, due to constitutional convention its pretty much the party with the most seats, although it doesn't necessarily have to be so.
Since the House chooses Government, the Government must command the confidence of a simple majority of MPs in the House of Commons. If the Government cannot command the confidence, it falls. This doesn't mean that every government bill must pass, but those that are considered important bills (such as the Budget, etc.) must be passed. Furthermore the house can present motions of confidence where half the members must vote in favour to save the government.
The loss of confidence doesn't necessarily result in elections, since anyone who can control half the house can be invited to form government. Convention has it, though, that this should not be done without a mandate and therefore, Leaders of parties who do not have the majority of seats are weary to try and govern when they haven't been "chosen" by the people.
The King-Byng affair illustrates how elections don't always follow non-confidence motions. After the 1926 election, William Lyon Mackenzie King won a plurality of seats but didn't win a majortiy. He tried to have the house dissolved by the Governor General. But the vice-Regal, Lord Byng refused to grant an election. As a result King resigned and Byng invited the Conservatives of Arthur Meighan to form the government. No elections were held until Meighan lost a confidence motion not long after.
Motions of confidence can occur at any point. However they are unlikely to fail during a Majority government since most MPs belong to the same party as the Government. They become more frequent during Minority governments where coalitions are working partnerships do not occur. For example, on the Ontario provincial level, the NDP of Bob Rae officially worked with the Peterson Liberals, promising to not deafeat the government for the first two years of the mandate, as long as certain NDP policies were passed.
There have been a few non-confidence votes in Canadian federal history. There is of course the one that brought Meighan down. John Diefenbaker lost a confidence motion based on the issue of nuclear warheads. The house was dissolved and the Liberals under Pearson won a minority government. The 1972 Trudeau Liberal government lost a vote of confidence on the Budget, but subsequently won a majority govenrment. The last no-confidence vote was against the Joe Clark Progressive Conservatives who, had tried to govern as if they had a majority, alienating both the NDP and the Creditists.
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