The potent cocktail which takes its name from that saying originated at the height of Prohibition when the honey’s sweetness disguised the taste of bathtub gin.
2 ounces (50ml) gin
1 ounce (20ml) honey syrup
¾ ounce (15ml) fresh lemon juice
To make honey syrup, mix equal parts of honey and hot water; stir until dissolved. Pour the gin, syrup and juice into a cocktail shaker with ice cubes and shake. Strain into a chilled cocktail glass and garnish with a twist of lemon.
Or, for a slightly more elaborate recipe: http://www.ehow.com/how_2100835_bees-knees-cocktail.html
A bit of trivia: the cat’s pyjamas and the cat’s whiskers are other slang phrases with the same meaning. Cat was the colloquial term for a Flapper.