Reply #12: It's a dismissive term that means, "you're crazy"

[crickets]

It orginated from ridicule of people who think that the government is sending out signals to control their minds; one of the strategies for calming them was to tell them to wear tin foil hats to block the thought rays. People use the term now to make fun of those who are interested in UFOs, or who think that there may be a shadow government, or any other idea that is considered silly by the mainstream. While most of the "mind control" set should get some sympathy for suffering genuine illness, and the subset of the UFO crowd who scream, "I've been on the Venusian mothership!" are pretty mock-worthy, the term often gets thrown at people unjustifiably. Kinda like the "conspiracy theory" phrase.

http://en.wikipedia.org/wiki/Tin_foil_hat

Sometimes humor is the best defense:
http://www.ericisgreat.com/tinfoilhats/
http://zapatopi.net/afdb.html

Probably more detail than you wanted. ;)

Edit: Oops! The Venusian Mothership people also deserve some sympathy for probably suffering from mental problems. That said, I don't think everyone interested in UFOs is crazy. My bad.