Talking shit is saying something that isn't true, or that is wrong and it's usually done behind someones back.
"Person 1": That g is fuckin ugly.
"Person 2": No she ain't, stop talking shit just 'cuz you couldn't get her.
"Girl": How you gonna act all fine with me and then talk shit about me as soon as I leave?
"Guy": How was I talking shit about you?