The graph shows how good subjects were at logical reasoning as measured by a test (blue), how good they thought they were (green) and how well they thought they did at the test (red). Apart from the top quartile, there was actually an inverse relationship between how skilled people thought they were and how skilled they actually were. The study also showed that the least competent individuals were also the least capable at recognizing the skill levels of others.
Great read! And great application to software design.