Used when describing how uninformed someone is or when they jump to conclusions about a situation they know nothing about.
"What did you and Justin do last night?"
"Nothing, mom. We mostly just hung out with his friends."
"Honey, I don't want you getting pregnant! You know how them boys are! If he tries to have sex with you-"
"Mom! You're so far off! We're not doing anything."
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This statement is designed to replace "That's what's up." It means, basically, "That's cool." or "Wow, impressive!"
Waiter: Here's a free bowl of ice cream to make up for the stale french fries.
Customer: That ain't too far off.
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A reference to the board game "Battleship", later digitized, when someone asks a question, or shooting a missile, and missing by "a bit".
J: "Is it less than 5?"
K: "Yeah, we'll say less than 5."
J: "dafuq Well how far off is the battleship?"