| Blowing Smoke is a euphemism for someone telling a tall tale as if it were true. A lie or perhaps a verbal troll to see how you react. Someone who knows the teller better may inform you that he was, "Just blowing smoke at you."
There is of course always the possibility that someone was exhaling carcinogen-laced vapor in your general direction after inhaling on a flaming stick of some noxious weed.
In the military, we would often try to freak someone out by running a small plastic tube behind a piece of electronic equipment that someone was trying to calibrate or repair. The more expensive and important the equipment, the better. When they were fully focused on their work someone would blow smoke into the other end of the tube - generally causing immediate panic and consternation, thinking they had somehow let the smoke out.
This can be good for a laugh, general all around ribbing, and making someone feel like a complete idiot. Thus is military camaraderie born. If someone falls for this trick twice, then not only should he feel like an idiot — he truly is one. | 
