It means you are in a very dangerous or precarious position. When you are threading your way through troubles as if you were traversing a dangerously narrow passage you are in "dire straits." The expression and the band by that name are often transformed by those who don't understand the word "strait" into "dire straights." The word dire means 'having dreadful or terrible consequences'. A strait is a narrow strip of water between two or more pieces of land, as in The Straits of Gibralta. Finding a safe passage through a strait requires great skill and/or luck.