Needle cancelling is just using a light tap of the shoulder buttons to store your needles. Especially useful in the air, since you can jump, and charge your needles while retaining mobility, or so you can quickly turn around while in the air using reverse needle canceling, which is just tapping the opposite direction just before using your needles to turn them around, then canceling them with the shoulder buttons. Sheik mains make a lot of uses for it, but I don't know any specific ones other than turning around mid-air of course.
And since you've started playing sheik, take a look at this thread.
http://www.smashboards.com/showthread.php?t=129276
That is melee sheik of course, but they are almost the same. You may want to disregard the chaingrabbing parts though, as something was changed about her down throw (I think) that makes it more difficult in P:M, so the data may not be correct on the melee thread.