It is a very commonly used idiom.
Meaning: It used to indicate when people say much but lack the substance or power to do so .It is also used when someone tries to frighten but never can do what they have said.
It is taken based on notion that dogs which bark much will not bite.
It also have another meaning ,but in positive sense here,it used to describe when someone might be using harsh remarks or words but are very soft inside.
1)My boss threatened to fire me again, but I know he won't do it. He's all bark and no bite.
2)She looks arrogant but shes 'all bark and no bite' type of person.
3)He never bothered when his elder brother shouts at him because he knew his brother is all bark and no bite when angry.