Yes, it has to do with swindling; cheating. But why? What is the imagery or story behind this word, 坑爹?
坑-爹,literally, means 'to trap your father'. As a slang, it means 'to deceive someone'. Thus, if you speak, "这个手机很坑爹 'this phone very 坑爹'", that means 'this phone is of low quality'. It is very possible that you could have been deceived by a seller or producer. By so speaking, you treat the producer (liar) of this low-quality phone as your son, then you turn to become its father. In normal usage, the sex is in fact irrelevant even if 爹'father' canonically should be male. 爹 here can refer to any one who suffer from being deceived. As a result, 坑-爹 implies a cursing attitude towards someone. After all, to play someone's father implies to dominate or control it. No one likes to have extra fathers except for that physiologic father. So, 坑爹 should be cautiously used. Of note, this inference has become very weak.
First, 坑爹 is somehow an Internet slang, which means the word is casual and it's OK to use it when you are chatting with your friends or posting it in a forum. But maybe it's not a good idea to use it in some formal situations.
I've searched but failed to find some concrete statements about the origin. It's seems the most spoken origin is from a Chinese version for a Japanese anime "搞笑漫画日和". There are also opinions on this comes from several dialects use similar words.
It's difficult to translate 坑 to English because the use for 坑 can be much further than swindling and cheating, especially in oral communication. 坑 means hole when interpreted as noun. The feeling is close to a hole had been dug and you fell down into the hole. It's proper to use it with a lot of things or events if they make you fell unhappy or not working as expected.
爹 means father. If it is used to call some oneself initially, I think he is raising his position and asking for being respected. (Hard to explain this for me, since similar usages are more in some dialects I'm not familiar)
And the meaning of the word changed as an Internet slang, 爹 in 坑爹 can be explained as anyone now. As a result 坑爹 can be explained as 坑人 or 坑我. And this can be treated as an adjective to express the felling that similar to a hole had been dug and you fell down into the hole or something digs that hole. It can be used the emotion when someone is unhappy, embarrassed or feel not good because other reasons. It can also be used to describe something unpleasant. The exactly meaning of the word varies according to the environment.
他坑过我。 He did something bad and caused loss to me. 他很坑，总是把事情搞砸。 He is not reliable and always make things bad. 这题很坑，很多人都做错了。 This problem is 坑 and many people failed.(easy to get wrong answer for the problem and makes people feel a bit annoyed) 这场考试真坑爹，我肯定不到90。 This exam is 坑爹 and I'm sure I can't reach 90.(the exam leads low scores and makes people feel not good) 什么，一瓶水要100块，太坑了！ What, a bottle of water charges 100 yuans, too 坑!(unfairly expensive) 我忘带钱了，坑爹！ I forget to bring money, god!
Sorry for my poor English, hope this makes sense.