The vast majority of Guernica was destroyed in the 1937 bombing. Franco ordered the bombing, which was carried out by the Germans, as a way of disheartening the Basque people, who were on the side of the Republicans. Though there was a munitions factory in Guernica, the attack was strictly a civilian target (the munitions factory was undamaged at the request of Franco, who wanted to use it for his own forces).
The attack is said to have been the biggest ever attack on civilians at the time and the first experiment in 'total war'.
For the importance of Guernica and why it was selected to be bombed, read the next page.