What Freud meant by this metaphor was that the human mind is more than just our consciousness; the consciousness is just the tip of the iceberg, so to speak. Beneath the water, there's a lot more ice submerged. This ice is a metaphor for the subconscious, which Freud set out to explore in his work as a psychoanalyst.

What Freud is getting at here is that the human mind and its workings are a lot more complicated than most of us tend to think. As with the iceberg, there's a lot more going on beneath the surface, as it were—much more for the psychoanalyst and his patient to explore.

Remaining at the level of surface consciousness doesn't tell us an awful lot about the mind. At best, it can only give us a very superficial understanding. It's only when we go beneath the surface that we start to gain a much deeper understanding of how the mind operates.

In doing so, we're dealing with the subconscious, the biggest chunk of the iceberg, so to speak, the most important part of the human mind. It is the subconscious, according to Freud, that contains all the important stuff that helps to explain why we act the way we do; all those repressed memories, feelings, and desires that have had to remain submerged in the depths of our subconscious in order to ensure that we can function in society.

The essential meaning of Sigmund Freud's analogy between the mind and an iceberg is immediately clear. The greater part of the mind is hidden, and only a small part is visible, both to other people and to the person whose mind it is.

More precisely, Freud saw the mind as being composed of three levels. The top level is the conscious mind, the relatively small section in which socially acceptable thoughts and perceptions are always on display and acknowledged. Below this is the preconscious mind. This corresponds to the part of the iceberg that is normally covered by the ocean, but only shallowly, and may be revealed at any moment in rough water. The preconscious mind is a repository of learned knowledge (things you learned at school, but have not used since, for instance) and memories.

The bulk of the mind is unconscious. This consists of thoughts and feelings the subject has repressed, such as selfish desires or desires which are socially unacceptable, painful and violent memories, fears and perversions. These resemble the bulk of the iceberg in being the largest and most influential part of the mind and in being hidden. Also like the concealed section of an iceberg, the unconscious mind contains great destructive potential.

While it is uncertain that Freud actually said or wrote this, it is congruent with his thinking about the human mind.

Freud spent the early part of his career studying "hysterical" females, women who exhibited very emotional or seemingly social deviant behaviors. He realized over time that this behavior came from repressed memories, thoughts, and desires. As he studied this further, he came to understand that all humans repress much of what goes in their lives and imaginations, relegating these thoughts and memories to the unconscious. In most people, this is a largely healthy defense mechanism: we would not be able to survive and thrive were we continuously conscious of, for example, our fear of death, painful memories, or our sometimes aggressive feelings towards those we love. These feelings are submerged unseen by people below the surface of their conscious minds, just as most of an iceberg is submerged.

The problem comes, Freud asserted, when people repress too many unresolved conflicts. In what he called the return of the repressed, these unresolved issues present as psychological symptoms, just as a person with a physical disease presents with symptoms that indicate that something is awry internally. This is where, according to Freud, talk therapy becomes beneficial: if a person can dredge up more of the "iceberg" of the unconscious, he or she can begin to deal with these submerged problems in a healthier way.

When Freud, the founder of psychology, said that "the mind is like an iceberg; it floats with one-seventh of its bulk above the water," he was referring the importance of the unconscious in directing human behavior. Before Freud, people were not aware of the ways in which their unconscious or subconscious minds affected their behavior. Freud saw the unconscious at work in human behaviors such as Freudian slips, in which people say what is truly on their minds in spite of their attempts to disguise or hide their feelings or thoughts. He believed dreams are also a way to access what is in the unconscious. The iceberg metaphor conveys Freud's idea that a great deal of human behavior is controlled by the unconscious—much more than the behavior controlled by conscious thoughts. 

In the iceberg metaphor, the id—the term Freud used to refer to instinctual human desires driven by the pleasure principle—is the part of the iceberg submerged under the water. The superego, the part of the mind that operates according to societal rules, is the part of the iceberg that is fully above the water. The ego, the reality principle which mediates between the id and the superego, is partly above water and partly submerged, meaning it is part of the unconscious and conscious mind.

The quote uses the analogy of an ice berg to demonstrate that only a small portion of the mind is 'visible'.

In Freud's theories of conciousness, the concious mind is the 'tip of the ice berg'. Working, in 'layers' underneath, is the preconscious and unconscious minds.

The preconscious is responsible for recall and can be accessed via cues. For example, you usually don't actively think about your email address, but if someone asks for it, you can access that information instantly. In the ice berg analogy, the preconscious mind is just below the surface. The waves and motion of the ocean can expose these parts of the berg, but mostly it remains just out of view.

The unconscious mind underlies our base feelings and emotions. This is like the 'base of the ice berg, hidden far below the ocean'.