Too clever by half means someone is too clever for their own good. They're not just clever, not just too clever, but even more so than that. It's exaggerating for effect.
Too clever by half appeared in print in the early 19th century, but too [something] by half is older, found in the 16th century. And the simpler by half older still, with evidence from before 1400 and 1000.
Too clever by half
The actual phrase too clever by half seems to be fairly recent and initally used somewhat jocularly. The earliest I found is from Ovid in London, a ludicrous poem, by a member of the University of Oxford (1814):
Cries Ovid, ah! what inexpressible fun!!
I find you're a rare dab, bright Sir, at a pun. —
Aye, rejoin'd his bright spouse, he's too clever by half,
For he makes such attempts that I never can laugh —
Thus meaning to shew her good man was a calf.
From the American Masonick Record and Albany Literary Journal, Volume 4 (February 20, 1830):
There may be exceptions indeed to ordinary rules, on which a man may go to martyrdom and a stake (such as that of HAMPDEN and ship money,) but these occur once in a century, and are only met with at the comers of streets by those who have an excess of logical discrimination, and have to pay a certain tax for being too clever by half.
The Examiner newspaper of February 4, 1838 includes it in quotes, and uses it to refer to someone trying too hard to be clever:
Like the wondrous wise man of Thessaly, who having scratched out his eyes by jumping into one quickset hedge, thought to scratch them in again by the same clever move into another, they [the Tories] would promise and vow to scratch in a new Ministry as they had scratched out the old one. But who would trust men so much "too clever by half ?" "We have lost you," they would have to say, "the bird in your hand, but it was expressly to catch for you the two fine birds, the phoenixes in the bush."
And The Examiner from February 11, 1838 has the following below a note "The following article was only in the Second Edition of our last Number", meaning it would have the same February 4 edition as above:
We should have at once pronounce it incredible that a hasty attack can have been hazarded, if we felt that we could calculate on the actions of Sir Francis Head; but all reasoning on probabilities is baffled by the rashness of that hair-brained officer, who, like some of our geniuses at home, will insist upon being "too clever by half," and will manage affairs so ingeniously, and with such recondite art, as to carry them to the closest verge of ruin.
The use of quotes suggest it was a fairly novel saying at the time, and usage becomes much more common in later decades, as this 4-gram chart shows.
Source: Google Books Ngram Viewer
Too [something] by half
But the general phrase too [something] by half is much older. The earliest example I can find in Google Books of too [something] by half is in The French Academie (1586) by Pierre de La Primaudaye:
Perillus besought him to giue him some monie towards the mariage of his daughters, wherupon he gaue to him also 50 Talents. And when he told him that it was too much by halfe,he replied thus : If half be enough for thee to take,yet is not enough for me to giue.
Even though it could literally be too much money by half, I think "too much by half" here simply means "way too much".
William Shakespeare's Love's Labour's Lost (1598):
The Letter is too long by halfe a mile.
This says the half is half a mile, but it's figurative not literal; the letter is much too long.
An English translation of Du Bartas His Deuine Weekes and Workes (1613):
Like as a Lion, that hath tatterd heer
A goodly Heifer, there a lusty Steer,
There a strong Bull (too-weak for him by half),
There a fair Cow, there a tender Calf;
Oxford English Dictionary
Finally, the OED defines it:
by half: by a great deal; much, considerably, far. Esp. in phr. too clever by half: trying too hard to be clever.
Their first three quotations show by half is even older still:
- [a1000 Boeth. Metr. xii. 18 Healfe þy swetre.]
- ?a1400 Morte Arth. 2127 Thowe to hye arte by þe halfe, I hete þe in trouthe!
- 1638 R. Baker tr. J. L. G. de Balzac New Epist. III. 13 Shee is fayrer by one halfe than shee was before.
They have quotations for too clever by half from 1858, 1889, 1944 and 1961.