It means to tease someone by saying something shocking as a joke.

eg: She said she saw the plane's wing fall off, but I think she was just pulling my leg.

I didn't really steal his wallet. I was just pulling your leg. Actually, I found it on the ground near his car.

Note:

Pull someone's leg的意思是说一些令对方惊讶的玩笑，并非中文扯后腿的意思。

例：她说她看见飞机的翅膀掉落了，我想她只是逗我玩儿的。

我没有偷他的钱包，之所以这样说不过是和他开玩笑。事实上，我在他汽车旁边捡到的。