Typically this is a comment about someone who is really stupid, or so unconcerned about their safety that measures need to be taken in order to protect them from themselves and others from their dangerous tendencies.
Alternately, this might indicate how high on drugs a group of friends will get.
John: My cousin is coming over today and he's really really retarded. I have to hide the cutlery or he'll eat it, throw it at his eye, or jam it into a blender and start pressing buttons while dancing nude in the kitchen rubbing egg yolk and flour over his genitals.
John's friend: That is: hide-the-cutlery retarded.
Louise: My boyfriend gets so stoned after parties he pukes and sleeps in it frequently, and I'm really worried that he might hurt himself. Last week I found him so stoned that he was doing hot-knives in the bedroom and he fell asleep with the torch on. Luckily he didn't knock it over when he started convulsing.
Louise's friend: He sounds like he's hide-the-cutlery retarded. Just hide the knives and maybe he won't try doing any late night hot-knife sessions?
Mark: Dude I just scored a 1/4 lb of some prime Jamaican gummy hash!!!
Mark's friend: Let's get hide-the-cutlery retarded!!!!!
Mark: FUCK YEAH!!!!
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