If you call something “fancy schmancy” you are showing that you are annoyed or displeased by the positive attributes. The rhyming word “schmancy” calls attention to the word “fancy” and shows that it is not meant at face value, but has another meaning. Let me give examples: If you go to a baby shower party, and the hostess makes very elaborate decorated cupcakes that are far superior than anything you could make, you might say to a party guest “did you see her cupcakes! They are so fancy schmancy!” and this means “her cupcakes are fancy, and I’m slightly jealous that I can’t make cupcakes that nice, so I’m putting them down (belittling them) by gently mocking how fancy they are.” If you want to go to a party, and you don’t get invited, but you know someone who did get invited, you might say “go have fun at your fancy schmancy party!” and this means “even though the party is something I want to attend, I’m making it seem less desirable by making fun of the party, and telling you to go have fun at something that will be unpleasant.”

Fancy schmancy is one of many examples of Yiddish humor, which offers wonderful, colorful ways of deflating pretension. This particular one is a way of describing someone or something that is pretentiously elaborate or overdressed. Putting on airs. There's a very good explanation in Leo Rosten's "The Joys of Yiddish". http://www.phrases.org.uk/bulletin_board/5/messages/1009.html

It basically sort of demeans formality. If someone is dressed up in a suit and tie and someone compliments his fancy clothing, you might say, "Fancy schmancy."