These characters combine to create a powerful visual metaphor. “Retreating one step” (退一步) from a tense situation or a narrow mindset allows you to see the “vast sea and boundless sky” (海阔天空) – a world of possibilities that was invisible when you were stuck in the heat of the moment.
This idiom is extremely common and can be used in a wide range of situations, from casual advice to formal speeches.
Its connotation is almost universally positive, carrying a tone of gentle, sagely advice.