"I am only a human being, and you bring your disputes to me, some perhaps being more eloquent in their plea than others, so that I give judgement on their behalf according to what I hear from them. Therefore, whatever I decide for anyone which by right belongs to his brother, he must not take anything, for I am granting him only a portion of Hell.
The main lesson of the hadith is that a judge passes a judgement, in the lack of clear evidence, based on:
- Argument presented ("what I hear")
- By all parties ("from them")
The ruling must not use judge's preconceptions or knowledge of a person's reputation in unrelated events, and must not be based on only one-sided account of the case.
The person who is ruled in favor of, based on the above, must not knowingly take what is not rightfully his or hers as this would lead said person to a portion of hell on Judgement Day, when the ruling is by Allah.
This hadith was narrated in relation to two brothers from Al Ansar who came to the Prophet with a dispute over their inheritance, with no clear evidence for one brother over the other. This was mentioned in Musnad Ahmad (the quote you have provided is as mentioned in Sunan Abi Dawud, and has also been similarly mentioned in Sahih Al Bukhari, Sahih Muslim, and others).
This explanation is as given by ibn Abdel-Barr in his book "Al Tamheed" Volume 1:
I am only a human being, and you bring your disputes to me
The Prophet is indicating that as a human being, he did not know what people hide within their hearts (except when revealed to him by Allah) or what their intentions or motives were. Then the Prophet is asked to judge among them.
some perhaps being more eloquent in their plea than others
Some people are better able to articulate their case than others, by providing more information, being more plausible, etc. Being more eloquent does not necessarily translate into being on the right side.
so that I give judgement on their behalf according to what I hear from them
The Prophet would then give his judgement based on what he heard from them. The argument presented by the more eloquent person may not be true, or may not be the full truth, but it would still serve as the basis of the judgement. Numerous scholars use this hadith to indicate that a judge must pass rulings based solely on the case presented ("according to what I hear") by all parties ("from them"), and not based on the judge's knowledge of someone's reputation in other unrelated events, or based on preconceptions.
Therefore, whatever I decide for anyone which by right belongs to his brother, he must not take anything, for I am granting him only a portion of Hell.
The Prophet is making a clear distinction that his judgment would be based on their argument and what was evidently presented. The judgement would not be based on unknown intentions or motives (this only Allah knows), and that his ruling would not make what is haram to become halal if not rightfully so. This means that the Prophet's ruling in this life could not be used as an excuse on Judgement Day for one brother taking what rightfully belonged to the other brother. If so, that person one would end up in hell.
The hadith in Musnad Ahmad mentioned that the two brothers then cried, and each decided to give to his brother the full share to avoid being in the slightest doubt of taking what was not rightfully theirs. The Prophet told them to discuss the matter together, agree on what they both thought was right, to split it accordingly, and to release each other of anything that might have been doubtfully taken (i.e., declare that they agree their shares are halal).