"You stink" without any qualifications generally means that you smell bad. However, in some circumstances, where someone's ability to perform some action is the context, it can mean "You're not good at it." So, for instance, if you're playing basketball and you miss a basket, someone may tell you "You stink." In this context, they mean you're not good at basketball. It is a mild way of being insulting.
More common in this exact circumstance seems to be the phrase "You suck," but this is slightly more insulting, and might be seen as obscene by some conservative groups.