"In
bocca al
lupo" is the
traditional Italian way of saying
good luck. Directly translated it means "in the mouth of the wolf", refering to when
Romulus and
Remus are saved and mothered by a she-wolf (As far as I understand.)
The proper response to "In bocca lupo" is "crepi il lupo" which means - "
death to the wolf."
I don't know why you have to respond in this manner, but any other response is considered
bad luck. It is also impolite to wish someone "in bocca lupo" before an
exam, because it's a sign of "
cattivo fortuna" or
bad fortune.