Does C have anything like the `substr (extract substring) routine present in other languages?

Not as such.
To extract a substring of length LEN starting at index POS in a source string, use something like
char dest[LEN+1];
strncpy(dest, &source[POS], LEN);
dest[LEN] = '\0'; /* ensure \0 termination */


char dest[LEN+1] = "";
strncat(dest, &source[POS], LEN);

or, making use of pointer instead of array notation,
strncat(dest, source + POS, LEN);
(The expression source + POS is, by definition, identical to &source[POS]

Why does strncpy not always place a \0 terminator in the destination string?

strncpy was first designed to handle a now-obsolete data structure, the fixed-length, not-necessarily-\0-terminated ``string.'' strncpy is admittedly a bit cumbersome to use in other contexts, since you must often append a '\0' to the destination string by hand.
You can get around the problem by using strncat instead of strncpy. If the destination string starts out empty (that is, if you do *dest = '\0' first), strncat does what you probably wanted strncpy to do:

*dest = '\0';
strncat(dest, source, n);

This code copies up to n characters, and always appends a \0.
Another possibility is
sprintf(dest, "%.*s", n, source)
(though, strictly speaking, this is only guaranteed to work for n <= 509).
When arbitrary bytes (as opposed to strings) are being copied, memcpy is usually a more appropriate function to use than strncpy.