A full explanation of why Dieppe happened and why it was a fiasco could take a whole book. To boil it down, though, you need to separate it into those two concepts; why it happened, and why it was a fiasco.
Why it happened:
The concept of briefly taking a port city was, as has been pointed out, not a new one. In fact, you could argue it predated WWII; British Army doctrine had long been that in situations where full scale offensives were not possible, the enemy should still be subject to harrying raids and minor attacks. (The British turned “Trench raids” into an art form in the First World War.) Minor raids on France took place all the time, so conceptually Dieppe was not a big jump; it was just a jump in scale.
And yes, there was considerable pressure from various parts to do something, anything. This was not so much Soviet pressure as it was political pressure within the UK; at that time the campaign in North Africa had embarassed a lot of people, including Churchill himself, and of course the Pacific campaign was a catastrophe. A victory of some sort was needed to call off the political dogs.
The use of Canadian troops was in part due to pressure by Canada, who were beginning to question why they had so many troops in the UK that weren’t doing anything, and also because, well, they were handy.
Then everything went to hell.
Why it was a Fiasco:
The reason it was a fiasco is simple; the Germans knew it was coming. It is absolutely, flatly impossible to achieve an amphibious landing of substantial size while under fire from an equally matched and determined opponent. It can’t be done. In every case an amphibious landing worked, it was either by taking an enemy unawares (Singapore) through ridiculously overwhelming force (Iwo Jima) or both (Normandy.)
The plan to raid Dieppe was blown ten ways from Sunday prior to the raid occurring. The raid had initially been planned for 5 July and was bombed by the Luftwaffe before departing, so the Germans either knew beforehand or were made aware on that day. Intelligence fathered after the raid eventually occurred on 19 August indicated that they had been preparing for weeks.
This is where Mountbatten comes in. The raid wasn’t his idea originally, but after the failure of the July 5 raid, it certainly WAS his idea to go ahead with the second version of it (Jubilee, as opposed to the original Rutter.) A full in-depth accounting of how this happened would take pages and pages of explanation of how the British command was structured, but suffice to say that Mountbatten went ahead and planned an attack that high command had no intention of carrying out; if that sounds bizarre, it is, but that’s what happened.
Whatever the pros and cons of the raid MIGHT have been, the fact that it was being planned only from Mountbatten down brought inherent flaws into the mix; since nobody above or lateral to Mountbatten was adequately involved, inter-service and inter-functional communications broke down. The intelligence branch was not made aware of the need for updated intelligence on Dieppe, so the raid went ahead with outdated intel. Units were switched out at the last minute, making the planning a bit ad hoc. No battleships were committed to provide heavy fire support, in part because the Admiralty quite rightly pointed out that a battleship sitting off the French coast would almost certainly be swarmed by German bombers.
One point that is important to note: it is popular belief in Canada that the RAF did not support the mission, which is a scurrilous and terrible lie; the RAF supported it in substantial force but got the snot kicked out of them. They lost 104 planes; (by way of comparison, on no day during the Battle of Britain did the RAF lose that many aircraft) and the nature of support provided was ineffective.
And to be perfectly frank, the Canadian forces committed were green as hell. The Second Division commander was not experienced and made several errors, and by all accounts small unit leadership was not good.
Combining all these things, you’ve got a recipe for disaster. The attack couldn’t possible have been successful even if it was perfectly prepared and led by Chuck Norris; as it was, it was poorly prepared and so was even more of a disaster than it would have been.