It's when a certain furry of the ice fairy species want their ass beat so bad that when you do it the shit falls off completely and the when the when the go away to no feel anymore and ass fall down
A threat for surprise retribution at a later date for an earlier transgression that usually results in the instigator missing teeth. Similar threats include "watch your back" or "you'll get yours". The notion of the saying is that retribution will happen suddenly when the instigator least expects it, such as sleeping and their teeth are placed under their pillow. The saying is otherwise used broadly to mean any level of revenge.
Someone does another person wrong or victimizes them, the victim may say "Watch yourself! You're gonna get a visit from the tooth fairy!"
Or used to dispel concern by others that retribution is going to be made "They're gonna see the tooth fairy, don't worry about it."