The meaning of this phrase seems pretty apparent. A dog that barks and barks and barks but never follows it through with an actual bite is not as scary as it may seem. According to Wiktionary  the phrase officially means: (idiomatic) Full of big talk but lacking action, power, or substance; pretentious, (idiomatic) Describes someone who often says cutting remarks, but actually has a soft personality underneath.

The meaning of this phrase is very literal as far as its origins go. It refers to when certain animals would trick pack dogs into thinking they were up a tree when in fact they had escaped. ( source ) Nowadays the expression is used to describe a person who is following the wrong lead, clue, trail.