This is a saying heard a lot at recovery group meetings such as Alcoholics Anonymous and Narcotics Anonymous. Denial is the PRIMARY psychological symptom of addiction. It is an automatic and unconscious component of addictions. Addicts are often the last to recognize their disease, pursuing their addictions into the gates of insanity, the collapse of health and ultimately death. A lot of the work done in 12-step groups is helping the addict recognize their own denial of the problem. An addict (an alcoholic is considered an addict addicted to alcohol) uses various methods to avoid admitting that their addiction is the problem, not their job, their wife, their life, the cops in their town, etc. Addicts blame others and circumstances for their inability to use drugs responsibly. They minimize the problems caused by the addiction. They try to deflect the attention drawn to the addiction onto others. All of these ways of denying that there is an addiction problem are called denial. When discussing denial in 12-step meetings this phrase often comes up. Personally, I hate the phrase, as it's just one of those sayings that really doesnt say anything, but if I said that in a meeting I'd be accused of being in denial.
Seriously though, denial is probably the most important obstacle to be overcome in getting someone with an addiction help. If the addict can't see that the problems he is facing are actually a result of the addiction, he is unlikely to willingly seek help dealing with the addiction. Breaking denial is the sole purpose of interventions that family members often have for addicts. Interventions present the addict with facts that can't be denied, and hopefully force the addict to admit that he or she has an addiction problem.