Now Tyler says this when he gives The narrator the chemical burn. This is one of the most memorable quotes because it has such a strong meaning. When the narrator is asking for the vinegar Tyler says "First you have to know, not fear; know, that someday you're gonna die". Then the narrator says, "You don't know how this feels!", then Tyler shows him that he has a burn just like the narrators.
Basically what it means is that once you've hit bottom, or rock bottom, there's nothing you have to live for, you can basically do anything, because you have nothing to lose anymore.
Just like Tyler, he doesn't care about looks or what people think of him, he understands that one day he will die so he lives life like its his last. He tells the narrator to give up because he has basically lost everything he owned. Now he has nothing to lose.
This quote makes sense because it gives you the question, "You lost everything, you have nothing to live for, you have nothing to lose, you hit rock bottom, would you still try to make your life perfect in any way possible? Would you still care about what people think of you? What do you have to live for?"