The description here is very apt—wolves in sheep's clothing, that is, they appear on the outside to be something they are not. I am convinced that when Jesus uttered this He was thinking of the church and false ministers who would be, in the future—that is, from the time of Jesus—insinuating themselves into the church by appearing to be sheep within the sheepfold.
Jesus used that terminology in regard to His relationship with the church. He is the Shepherd; we are His sheep. Here we have wolves (false ministers) who look like sheep, but it is hypocrisy. They only look that way on the outside.
He tells us we will know them by their fruits. The fruit that is produced is not something that necessarily will appear very quickly. But Christ guarantees that over a period of time the church will be stripped of its true spiritual vitality in terms of the character that will be produced within the flock.
What is He saying? The implication is (right in the context) that Jesus is connecting belief with practice. You believe a certain set of doctrines and you are going to practice something because of the teaching. Another way of putting it might be connecting creed, that is, the religious creed or the dogma that a group is following, will produce a certain kind of conduct by the people. Belief and practice, creed and conduct—Jesus is saying here they are vitally connected. In other words, the teacher cannot hide what he is going to produce. Eventually it will come out.
Now, Jesus approaches this section from the negative, because He is speaking about false prophets. But He makes it clear through the whole paragraph here that the opposite is also true. You can know a good prophet by the fruit that he bears himself. Hopefully, good fruit. And you could say that this comes on down the line; you can tell who is a good Christian by the good fruit that he bears. A good tree bears good fruit. And the same goes, a bad tree bears bad fruit. And a good tree should not bear any bad fruit. He says actually, the good tree cannot bear bad fruit, otherwise he would not be a good tree. And a bad tree cannot bear good fruit. Otherwise, the bad tree would be a good tree.