"Be fooled" indicates a passive action, meaning that the object is the recipient of the action of the verb "fooled".
Here, fooled means "deceived" or "tricked". So the sentence breaks down quite easily:
"Do not" : Negative command.
"be fooled" : be the recipient of deception
"by..." : indicator of who or what is performing the deception.
Compare with Harregarre's example:
"Don't be fooled by his appearance, he's a bad guy."
"His appearance" is performing the act of deception, and "be fooled" indicates that you are the subject of the action, because of the passive tense.