It's like creating a huge storm in a small teacup, something that's completely out of proportion to the actual issue.
Here are some examples of how it's used:
* "The whole argument over the missing cookie was a storm in a teacup - there were plenty more in the jar!"
* "They're making a storm in a teacup about the new policy, it's really not that big of a deal."
The phrase suggests that the person or group involved is exaggerating the seriousness of the situation and overreacting.