It means to beat someone up, or to physically attack them. Quite often it is used when referring to a parent spanking or disciplining a child.
"Just wait 'til I get you home, I'm gonna pound the tar out of you...."
Sometimes it is phrased "knock the tar out of" or "beat the tar out of." The phrase has its origins in baseball, where some batters bragged that they hit the ball so hard they knocked the tar out of the horsehide.