Snake oil is an expression that originally referred to fraudulent health products or unproven medicine but has come to refer to any product with questionable or unverifiable quality or benefit. By extension, a snake oil salesman is someone who knowingly sells fraudulent goods or who is himself or herself a fraud, quack, charlatan, and the like.
"snake oil" as sold in the US was essentially capsaicin, which is used today, both as a topical treatment and others, for a variety of muscle/bone/tissue ailments.
http://en.wikipedia.org/wiki/Capsaicin#Medical
Whereas snake oil in cryptography tends to be worse. In practice even snake oil algorithms are probably enough protection for short-term, limited use (no one is going to devote real cryptanalysis resources to high school notes), but it can encourage people to have a false sense of security and do things they wouldn't otherwise, or it ends up getting used for purposes not originally intended.
