The term originated by a night crew worker for a local grocery store, in which all food product, usually candy around the bulk bin section, was considered approved to eat without being considered stealing from the company after it had touched the floor, as it was unsanitary for customers and would be thrown away otherwise.
The term now applies to any item of food, not just candy, that has touched the ground, but the dropee feels is still worthy of eating regardless.
*Action* Ted drops a potato chip on the floor.
Bill: "Floor candy!"
*Action* Bill picks it up and eats it.