Origin unknown, but this phrase was recently popularised
by Dale Howard from Big Brother 9 in the UK.
It describes someone who makes themselves look
stupid when they say certain things. Hence they look
stupid(as you would if you talked with your dick hanging out).
Can also often mean
that someone has double standards
and possibly quite hypocritical behaviour
"Rex is probably taking notes on me anyway, talking with his fucking dick out all the time. I'll be doing
something and he'll be doing
thing all the time so he can't say anything. He's just talking with his dick out *cue Jennifer pointing
to Rex across the garden who Dale
hasn't spotted yet*