The quote comes from Act 3, scene 3, and is an instruction from Othello to Iago. In this quite lengthy scene, Iago has managed to persuade Othello into believing that Desdemona and Othello's demoted lieutenant, Cassio, were having an affair. He did this by using innuendo, suggestion, downright lies and by playing on the general's emotions.
At the beginning of the scene, the two men chance upon Desdemona and Cassio talking. Cassio slips away and Iago cries: 'Ha! I like not that.' When Othello asks him what is not to like, he is evasive, piquing the general's interest even more. Othello asks him if it was Cassio that they had seen. He replies that no, he cannot believe that Cassio would slink away so 'guilty-like.' He plants a pernicious seed in the general's mind that Cassio has something to hide.
It had, in fact, been Iago who had advised Cassio to approach Desdemona to petition Othello on his behalf for his reinstatement. Desdemona tells Othello that she had been speaking to a suitor and that it was Cassio. She then starts nagging him about giving Cassio a hearing. The general is clearly upset by Iago's earlier intimations but finally relents, telling his wife that he would listen to him. Desdemona is, however, displeased and tells him that she expects an honest answer from him within three days.
After Desdemona has left, Iago questions Othello about Cassio and whether he knew that Othello was in love with her when they were both seeking her affection. When Othello answers in the affirmative and wishes to know the purpose of his question, he says that he did not know that Cassio had been 'acquainted with her.' Othello then asks about Cassio's honesty. Iago plays word games with him and frustrates the general by not giving him a direct answer. He then gives a speech about the virtue of honesty and one's good name.
Othello insists to know what Iago is thinking but he refuses, supposedly because he does not want to harm anyone's 'good name.' He warns the general about jealousy and tells him to guard against it. The deliberate focus on these terms is obviously to make Othello suspicious and to work him up. Othello then states the following about doubting Desdemona's virtue:
I'll see before I doubt; when I doubt, prove;
And on the proof, there is no more but this,--
Away at once with love or jealousy!
Iago sees in this an opportunity to share his thoughts with Othello and tells him that he does not have proof. He suggests that Othello should watch the interaction between Desdemona and Cassio, for he does not wish to see the general's kindness being abused. He states that it is custom for Venetian women to keep a secret lover. He states further that Desdemona deceived her father and did love Othello when she appeared to be afraid of him. The suggestion is obvious - Desdemona can easily deceive.
Just to make sure that Othello has gotten his message, Iago returns soon after he has left, telling Othello that he should not listen to Cassio for a while and watch his behaviour, especially how he conducts himself with Desdemona. Othello is convinced by Iago's seeming sincerity and says:
This fellow's of exceeding honesty,
And knows all qualities, with a learned spirit,
Of human dealings.
He has, clearly, been misled. When Desdemona returns, he has developed a headache and when she wants to wipe his brow with her handkerchief, he pushes it away, letting it fall to the ground. Emilia picks up the napkin and later gives it to Iago who is exceedingly glad about it. He plans to plant it in Cassio's rooms as definite proof of his adulterous affair with Desdemona.
Othello, who has clearly been disturbed by Iago's intimations, returns and threatens his ancient that he would kill him if he is wrongly slandering his wife's name. Iago acts the victim and cries death to honesty since it brings only trouble. Othello asks him to be open and Iago asks how. Othello says he needs ocular proof of Desdemona's infidelity. Iago slyly wants to know if the general means that he actually wants to see her having intercourse. Othello is overwhelmed by the thought and says that he needs a living reason why she is disloyal.
Iago then relates an occasion in which he and Cassio had supposedly been sharing a bed. Cassio, dreaming, and believing he was Desdemona, said, 'Sweet Desdemona, let us be wary, let us hide our loves.' He then kissed Iago passionately and laid his leg over Iago's thigh. Othello is shocked and calls what he hears 'monstrous.' He promises to tear Desdemona into little pieces. It is at this point that Iago decides to play his trump card.
He asks Othello about a napkin spotted with strawberries. The general replies that it was his first gift to Desdemona and Iago tells him that he had seen Cassio wipe his beard with just such a handkerchief. Othello is completely overwhelmed and convinced that he has been cuckolded. He passionately cries out for blood and goes on his knees, making a sacred vow to take revenge.
Iago kneels with the general and promises to give his life in service to him. He promises to assist the general in whatever bloody deed has to be performed. Othello expresses his gratitude for Iago's loyalty and service and immediately gives him a task. He has to kill Cassio within three days.
I greet thy love,
Not with vain thanks, but with acceptance bounteous,
And will upon the instant put thee to't:
Within these three days let me hear thee say
That Cassio's not alive.
This instruction is significant in that it links with Desdemona's earlier request that Othello should speak to Cassio within three days. He obviously wants to avoid having to speak to him and, if Iago has killed him, he would have had his revenge. Iago promises to do as he is asked but requests that Desdemona not be killed. Othello damns Desdemona and says that he must find a suitable way in which to kill her. It is also at this point that Othello appoints Iago as his lieutenant and Iago promises to be forever in his service.