"Dutch courage or liquid courage refers to courage gained from intoxication by alcohol. Originally the phrase 'Dutch courage' referred to the courage that results from indulgence in Dutch gin (jenever), but 'Dutch courage' can also refer to the gin itself.
In 1650 Franciscus Sylvius, a Dutch doctor, created Dutch gin in an attempt create a diuretic medicine. This was then used by soldiers in the Thirty Years' War by English troops and was an instant success for its believed warming properties on the body in cold weather and its calming effects before battle. Because of the effects of Dutch gin English soldiers fighting in the Dutch Republic in the 17th century apparently called the drink 'Dutch Courage'."
The context I heard it was referring to a situation, that you need to "get some Dutch courage" before doing something. I was puzzled by what was meant, was it suggesting that you need to be Dutch before doing something? Or do you need to have extra portion of cheese & mustard in order to be really courageous? But in essence it actually means, get some alcohol in to your system! As I have not bumped into significant amount of people being very drunk or taking sips of alcohol from a small bottle hidden in their sleeves, it is bid misleading nowadays I would say. I think there is plenty of courage in Dutch people even without alcohol - at least they have no problems being very direct! ;) I think though the Dutch courage could be useful saying in Finland, where it probably happens more nowadays as well. Sometimes a bit of alcohol is needed to get the bit more reserved/quieter Finns to talk ;)