The saying describes someone who unquestioningly does something stupid. It's based on the kool aid that was drunk at Jonestown. It turns out that only a small percent knowingly drank poison of their own free will. Some honestly didn't know there was poison, and others were forced to drink it at gunpoint.
I have never used the term. I just heard the saying in a song, and felt the need to inform others. It's inaccuracy causes it to be offensive, and I'm sure people wouldn't use it if they knew.