The phrase is more often used sarcastically. When you are trying to find some paper, say, and you say to someone nearby: "There's no paper here", they may well point to a stack of the blessed stuff right there in front of you! That's when they say: "What do you think that is...Scotch mist?" In other words, 'Scotch mist' means something insubstantial, or in effect, 'invisible'.