This is from the children's game, called "Tag." One person is "it." That person has to touch one of the other children - when "it" touched someone, that person was "tagged." The person tagged is now "it." Everyone runs from "it" and "it" has to chase the other kids to tag one of them, so he won't be "it" anymore.
So the phrase really is: Tag - you're "it."
When you've been trying to reach someone on the phone and you keep leaving each other messages but don't get to talk in person, you say you're playing "telephone tag." If you know the person well, after a few of these missed messages, you might say something like "It's Barb and it's 11:30. Tag, you're it." That means that it's now the other person's responsibility to call you the next time.