A story told in order to cast the teller in a favourable light. Exaggeration is a key part of this.
Tom, "I caught this fish on Saturday, must have been like 40 pounds"
Jason, "that sounds like such a fish story dude, it was totally a minot"
Jason "I was with these 5 hot chicks and they were totally into me...bla bla bla"
Tommy, "fish story dude, u were totally pissed and swore at 3 fat girls, and then you got thrown out of the club".