What is meant by "don't piss on my boots and tell me it's raining"?

I have heard a couple of times recently the phrase "don't piss on my boots and tell me it's raining", usually in the context of a heated argument so I've hesitated to ask speaker what exactly he meant by it. Can anyone here help?

It suggests that the person you're upset with is harming you, making an unbelievably brazen claim that they are not, and that you have seen through their meagre attempt at deception.

There are a few variant forms. There's pee versus piss for varying the level of crudity, and even spit to avoid the subject of urine entirely. The thing being urinated (or spat) on can be a boot, shoe, leg, back, face, etc. Some examples:

Gal, you can't spit in my face and call it rain. [spoken to one who is trying to deceive.]
Boy, you can't piss on me and tell me it's raining.

(from Honey, hush! An Anthology of African-American Women's Humor by Daryl Cumber Dance, 1998, p88)

Senator: The war's over. Our side won the war. Now we must busy ourselves winning the peace. And Fletcher, there's an old saying: To the victors belong the spoils.
Fletcher: There's another old saying, Senator: Don't piss down my back and tell me it's raining.

(from the film The Outlaw Josey Wales, 1976)

Listen, you son of a bitch, you think you can get this straightened out? Well, King Kong can't straighten it out for you. Are you trying to spit in my face and tell me it's raining outside?

(from Alias Big Cherry by Robert H. Adleman, 1973)

Booker T: Tell me anything, boy. Pee on my back and tell me it's raining.

(from the play Five on the Black Hand Side by Charlie L. Russell, 1969)

I take the saying as:

Don't create a problem and blame it on external factors.

Because the "rain" came from YOU, and not from the weather.

There are a few major uses of the phrase Don't piss on my boots and tell me it's raining. The basic idea is that someone just blatantly insulted or wronged another and, when caught, tried to convince people that it was a good thing. This would be akin to stealing money out of a desk drawer and then trying to claim you were going to put it in the bank for them. The thief was caught pissing on someone but didn't own up to doing anything wrong — even worse, the thief tried to play the situation off as a positive act.

The actions here don't need to be covert, either. If I walk up to someone and slap them in the face with the excuse, "Oh, you had a fly on you" they could reasonably respond with, "Don't piss on my boots and tell me its raining." The main purpose of the saying to identify a bad thing as bad and to not dress it up as a good thing.

Likewise, the actions don't need to be intentional. They don't even need to be caused anyone in particular. If someone's lover just left him and a friend tries consoling him by saying, "You were above her anyway" the same response would be appropriate: "Don't piss on my boots and tell me it's raining." In other words, stop telling me a bad thing is a good thing. Just admit it was a bad thing.

To summarize:

• Pissing on someone is an idiom that means doing something bad to someone
• Don't piss on my boots and tell me its raining is a response to someone dressing up a bad situation — usually for their own benefit — by telling them to knock it off and stop lying