You'd use this to mean that although the situation is less than ideal, you accept it because worse things could be imagined. "My pay rise is nowhere near as much as I expected, but it's better than a slap in the face with a wet kipper." Similar phrases are "better than a kick in the teeth" and "better than a poke in the eye with a sharp stick".

The usual phrase would be "Better that than a slap in the face with a wet kipper." It is said when some minor bad luck or accident happens to somebody. It just means that there are worse things that could happen. "Oh, this is terrible! I just broke my shoelace!" "Better that than a slap in the face with a wet kipper."