It refers to the supposed cultural habits of Frenchmen - cheese eating and surrendering when any slight agressive action is taken towards them or their country. It is considered perjorative in any sense.
The Phrase was originally used by an American General in WW2 to describe the French and did not magically spring to life during the mid 1990s.
Just to corrent all those who beleive everything they read on the web
We gave them freedom. They gave us body hair and Body odour.
Yeah, i hate them cheese eating surrender monkeys also.
good, you want to go get some smooth tasty pudding?