Literally, this means “to smoke the carpet”. (Moquette, by the way, is a useful non-slang word: it means “fitted carpet”, as opposed to tapis which is any carpet.)
This expression was probably created to make fun of potheads and it refers to the supposed effects of smoking fibers from a carpet (don’t try it at home): it means “to talk nonsense”, “to be delirious”, as if you were high.
Non mais t’entends ce que tu racontes ? T’as fumé la moquette ?
Do you even hear what you’re saying? Are you high?
Y a le voisin qui a réveillé tout le monde en chantant au milieu de la nuit… Faut vraiment qu’il arrête de fumer la moquette.
The neighbor woke everyone up by singing in the middle of the night… He really gotta stop doing drugs.
Listen to the examples: