It means if someone is giving you an explanation about something or you read something that is confusing 'it's clear as mud' meaning it's confusing and not clear in your mind.
LITERALLY it means nothing, because mud is not clear. The word "literally" means to take the phrase exactly as written and not define it using slang or metaphor or anything else.
The English term 'mud' has several different uses: 1: water soaked soil; soft wet earth; 2: soil with mud, muck, or mire; 3: slanderous remarks or charges; 4: plaster with mud
Depending on context, if you say something and a person miss-hears you and you then correct them, that would be clearing up a miss understanding. Or if person a, dislikes person a because of...