I've never heard this phrase used in the above context... although that might be how they use it in places other than Toronto
. Which segues nicely into the real meaning of these words...
Canada is made up of two parts: Toronto and the Rest Of Canada. Toronto is oblivious to the Rest Of Canada. The Rest Of Canada hates Toronto. You follow?
Well, it's not quite that simple. We know of Vancouver and Montreal, and think they make nice places to visit (or, if we haven't been ourselves, we've heard from other people that they make nice places to visit). We can generally name all the provinces and territories (and, if we're really sharp, we'll remember to include Nunavut). We can probably name one premier other than our own, whether because they drive drunk, or yell at the homeless while drunk, or (in years past) because they wanted to get out of the country and take their province with them.
We know we're the second biggest country in the world (and hey, just a few more breakaway Russian states and we'll be first). We just don't think of the bits between here and Vancouver as being occupied, per se. I mean, really, if Manitoba disappeared, would we know? And besides, some of those places are scary. Take Alberta. Please. (Seriously, we'll trade you all of Alberta for New York City. Hell, we'd settle for Seattle... come on, it's got tons of oil, you'll love it.)
The Rest Of Canada hates Toronto for good reason. For one thing, as our de facto government for life has shown, all you really need to do to run the country is to win in Ontario. Besides that, our national newspapers are virtually indistinguishable from our Toronto-based ones. Also, driving in Toronto is a horrifying ordeal (one which many unwilling Canadians will have to undergo, since they all have one relative living here). And besides, there's something vaguely un-Canadian about us. Possibly the way we watch hockey but hardly ever play, or how we have more than three radio stations. And then there was the time that we had too much snow, so we called in the army...
In short, there's not a lot of common ground between Toronto and the Rest Of Canada. Fortunately, we are united in other ways - making fun of Americans, for example.