The Incident was an electromagnetic anomaly that apparently caused a catastrophic event that resulted in the DHARMA Initiative establishing the Swan station's protocol. The Incident was first mentioned by Dr. Marvin Candle in the Swan Orientation film. ("Orientation") The Incident occured due to a system failure of the Swan reactor in the Incident Room. ("Hotel Persephone")
Scenes from the Orientation filmDuring the Swan Orientation Film, Dr. Marvin Candle mentioned that there was "an incident" which resulted in the creation of a protocol that required a code to be entered every 108 minutes. The incident involved a leak in the containment associated with an electromagnetic anomaly. The leak caused an unspecified charge to build up within the anomaly. As the charge built up, the magnetic field associated with the anomaly grew. After 108 minutes, the magnetic field was large enough to damage the Swan station. This incident most likely occurred before 1980, the production date of the film. ("What Kate Did")
Dr. Marvin Candle issues a strict warning not to use the computer for communication with the outside world. He goes on to say that failure to comply will compromise the integrity of the project and could result in another incident. Candle also seems to indicate that the incident occurred shortly after the Swan station began operations. ("What Kate Did")
It is unknown exactly what caused the incident to occur or what kind of damage it caused. The protocol was created so that the magnetic anomaly could be discharged every 108 minutes, thus preventing an electromagnetic catastrophe. Failure to comply with this protocol leads to a system failure. There is a failsafe mechanism in place below the floor of the computer room that will destroy the Swan and permanently and safely seal the electromagnetic anomaly. ("Live Together, Die Alone")