As an orphan, Bud naturally leads a pretty unstable life. Constantly moving around from place to place, he lacks the security that a child with a loving family would take for granted.
So, in order to give some structure to his life, and to make his life a little more fun, he devises a set of rules. Among other things, these rules will also make Bud a better liar, which he finds to be an essential skill when dealing with adults, many of whom are themselves thoroughly dishonest.
Bud's rules are drawn from common experience, and so it's perhaps inevitable that other people appear to follow them. One such individual is the abusive, bullying Todd Amos, whose mom and dad are Bud's latest foster parents. He seems to be following Number 3 of Bud's rules, which states,
If you got to tell a lie, make sure it's simple and easy to remember.
Or, to put it another way, in order to be a good liar, you have to have a good memory. Otherwise, it's likely you'll get found out.
Todd's lie—that Bud physically attacked him—is indeed very simple and easy to remember, not least because Todd only just made up the lie. In actual fact, he was the one who attacked Bud. But because Todd's mother thinks that butter wouldn't melt in his mouth, she immediately believes him.
On the whole, Bud's rules are pretty handy and give structure to his otherwise chaotic existence. But other people can use them too, and they can use them against Bud. And when they do, as in the case of Todd, they can actually undermine whatever limited stability Bud has managed to introduce into his life.