Japanese Domestic Market. They have a lot more limitations for how long you can own a vehicle over there so they cut them up and ship the parts over here.
Slightly incorrect - you can keep the vehicle but it would have to go through a "recertification" process the cost of which makes it so uneconomical that most people don't - they just trade in and get a new car.
I think the ones that get cut are the ones they cannot sell as complete vehicles - a lot of used JDM vehciles get resold in the RHD markets of the UK and the Caribbean - I'd estimate that over 80% of the vehicles imported into Guyana (which is where I live) are used JDM, as the import taxes on a new vehicle are absolutely ridiculous - imagine paying USD$20~22K for a 09' Suzuki GrandVitara and then having to pay an additional USD$45K to the government.
FWIW - I have had at least one bad experience with used JDM and I know of several other folks who have also had problems, flip side is that was one vehicle out of three (so far) and I also know several other folks who have no problems.
It's like buying anything used, you'll get some good & some bad, so if you can, buy from someone with a good reputation and a warranty.