1) This tells someone that their mom is indeed a man, which means that their father is gay and is satisfied with his transexual lover, who is reffered to as "mom" because of his womanly outer appearance.

2) This may also be used to confuse someone and make them ponder what you said just long enough for you to come back with a more meaningful insult.
Greg: "Timmy, I heard you were gay."
Timmy: "Well, yer moms a man."
by Kyle the Iceman October 18, 2006