Okay, this is a very complicated insult. I would say this to my friends, but not to a stranger or my parents.
1. Many companies in the USA have a free telephone number you can call them with. Usually, they start with 1-800-xxx-xxxx... Ford Car Company has a number, 1-800-something, you can call them free from anywhere in the country.
2. To make the number easy to remember, sometimes you use the letters on the telephone dial to spell the number. So the number 1-800-356-9377, looking at the letters on the telephone, are also 1-800-FLOWERS. This is the free number for a flower company.
3. So, we hear "Call 1-800-FLOWERS today, buy some flowers!" on the TV many times. or, "Call 1-800-CONTACTS and buy some contacts!"
4. So, people joke about this. "You are so stupid, you should call 1-800-I AM SO STUPID..." or "She is so ugly, her telephone number is 1-800-UGLY."
5. "Bite me" is an insult. (WARNING, ADULT LANGUAGE) It is short for Bite my penis, or Suck on my penis, or Perform sex with your mouth on my penis.
6. So in this example, Sam wants Billy to shut up, to go away, to stop asking stupid questions. So he makes up a fake, a phoney phone number to call. "Call 1-800-Bite Me".. he could have said, "Call 1-800-SHUT UP!, stupid" instead...
"Bite me" is also said "Eat me".. or, Eat my penis, or put your mouth on my penis. It is a way to let someone know you think they are stupid and you want them to go away or be quiet.