Dogs naturally bark in the site of danger or to alarm someone or something they are not sure off. The bark is meant, many a times, to give warning to an intruder that the dog may actually attack them in the event that they do not heed the warning. But it has been found that dogs also bark out of fear and some of these barking dogs are very harmless as they bark and retreat. However there are dogs that do not bark or give a warning sign. These dogs are known to be very dangerous because they will approach and attack quietly. Our elders made this observation that the real danger came from the quiet dog and hence used this to highlight that the loud people are usually the least effective and can be reasoned with.
The proverb is used to refute the danger posed by those who threaten incessantly by claiming that real danger comes from those who act rather than talk. It easier to reason and work things out with the loud person than with the silent one who internalizes their discontent. It is also used to advise that people will not treat you seriously if all you do is talk, promise or threaten as the real action comes from those who do little talking.