Falstaff's motto is essentially a proverb: a word of wisdom that is meant to be used in everyday situations. For example, the proverb "You draw more flies with honey than vinegar" means that it is easier to win people over if you are kind instead of rude. In the same way, the phrase "the better part of valor is discretion" means that the best sort of courage--the kind that constitutes true bravery instead of recklessness--is courage that is guided by wisdom (discretion). Bravery applied blindly without caution and wisdom is meaningless.