In the Illuminatus! Trilogy by Robert Anton Wilson and Robert Shea, a Bavarian Fire Drill is the technique that the Illuminati use to control people's minds by inserting keywords and actions into their speech that make people automatically obey.
A senior Discordian demonstrates this to a junior Discordian by jumping out of their car in a traffic jam, walking around and clanging on things, and repeating "Everyone, stay calm, move to rear, no pushing" and other phrases associated with emergencies. Everyone follows the orders, even though there is no fire present.
By extension, the phrase can be used to describe any swaying of people's opionins by bringing up ghoulies. during the 80's, for example, mention of Drugs and the need to have a War on Drugs were used as a Bavarian Fire Drill to get instant public support. Since the effectivness of that has worn off, a number of candidates have been put forward for the same effect; including computer crackers, terrorists, gun owners, and (in the aftermath of Columbine) geeks.
A perfect example of a Bavarian Fire Drill is a book I found at the library here in Portland, Oregon the other month. It was entitled "Militias and Hate Groups", thus connecting the two in anyone who looked at the book uncritically. I can only imagine the reaction if someone wrote a book entitled "Homosexuals and Child Molesters" or "Southern Baptists and Foot Fetishes"