The first time I heard this, it was actually directed at me. Since then it's become one of my favorite phrases.
Essentially, it's a way of telling someone to "stop pretending", "stop acting like..." or "don't act like you don't know".
Let's take a look at how we might use this:
You loan your friend $20, the next day you see him with a pocket full of money, and you say "Great, you can pay me back that $20". He says "What $20?". Your response:
No te hagas (el tonto / el pato)
Don't act stupid/Don't act like you don't know what I'm talking about
You may have noticed that you can tack on "el tonto" or "el pato" to this expression. While "el tonto" actually makes sense, because it can mean "fool" or "silly", but I have no idea where "el pato" comes in. Tha's just the way the expression works.
Here are some more examples:
No te hagas el enojado
Stop acting like you should be angry
No te hagas la victima
Don't act like you're the victim
There are other ways to use this phrase, but this will certainly get you started.
¡Hasta la próxima!