Something that is the “bee’s knees” is stylish and the height of excellence. It is sometimes explained as being from an Italian-American way of saying “business”. I’ve also heard it argued that it is properly “Bs and Es”, an abbreviation for “be-alls and end-alls”.
Both are wrong. “Bee’s knees” is actually one of a set of nonsense catchphrases from 1920s America, the period of the flappers. You might at that time have heard such curious concoctions as “cat’s miaow”, “elephant’s adenoids”, “tiger’s spots”, “bullfrog’s beard”, “elephant’s instep”, “caterpillar’s kimono”, “turtle’s neck”, “duck’s quack”, “gnat’s elbows”, “monkey’s eyebrows”, “oyster’s earrings”, “snake’s hips”, “kipper’s knickers”, “elephant’s manicure”, “clam’s garter”, “eel’s ankle”, “leopard’s stripes”, “tadpole’s teddies”, “sardine’s whiskers”, “pig’s wings”, “bullfrog’s beard”, “canary’s tusks”, “cuckoo’s chin” and “butterfly’s book”.
None of these made much sense – but then, slang fashions often don’t – and their only common feature was the comparison of something of excellent quality to a part of an animal with, if possible, a bit of alliteration thrown in. Another example was “cat’s whiskers”, which is sometimes said to have been the first of the bunch to arise, from the cat’s whisker that was the adjustable wire in early radio crystal sets.
However, “cat’s miaow” and “cat’s pyjamas” (an exception to the anatomical rule, referring to the then new fashion of wearing pyjamas at night) are both recorded slightly earlier, in about 1921. The first appearance of “bee’s knees” in print was found by Barry Popik in a flapper’s dictionary in the Appleton Post-Crescent of Appleton, Missouri of April 28, 1922, glossed as meaning “peachy, very nice”. Clearly, by then it must already have been well established.
It was a short-lived, frivolous slang fashion and only a very few such expressions have survived, of which “bee’s knees” is perhaps the best known. A British example from the same period is “dog’s bollocks”. This, too, indicates something excellent, admirable or first-rate. Eric Partridge suggests it arose as a term for the printer’s mark of a colon followed by a dash. This fits the pattern and period of the others, but its first sense suggests it came out of a different tradition. Certainly, it only became a general slang term much later.
From: http://www.telegraph.co.uk/arts/main.jhtml?xml=/arts/2004/05/31/boquin.xml&page=3
Bee Lore 