The shit hits the fan generally means that things are going to (or have just gotten) get very ugly. People are going to be hurt/maimed/killed/not amused. Example usage:

"What do you mean this nuclear reactor has no safety cutoff? If the media gets hold of this, the shit will hit the fan! We'll lose our jobs."

or

Jack walked into the kitchen and saw that little Billy, had, through his cooking endeavours in the kitchen; had well and truly destroyed every working item in it. That's when the shit hit the fan. Jack grabbed at Billy, who tripped, but as he did so, pulled a knife down with him, which fell into Jack's foot, who fell backwards, tripped over the cable with the blender full of food, which landed on Billy's head, crushing his skull and killing him instantly.
Variants of this phrase are either of the bowdlerisation variety (e.g. "the faeces have hit the fan"); or the exaggeration variety (e.g. "the sewage plant was soon to have an encounter with the jet turbine").