"Bis auf das letzte Hemd"
I think "das letzte Hemd" is equivelent (though not literally) to "the shirt on/off my/his/her back" in English, as in "I would give him the shirt off my back" or "they cheated him out of everything, down to the shirt on his back".
Presumably the "shirt on my back" is equivalent to "the last shirt", because if I'm giving away shirts (or being robbed of them), the one on my back will probably be the last one I part with :-).
They accepted "to the last shirt" as well. I think this is idiomatic, meaning he gives his all or something like that.
Imagine two firms are competing against each other, and one destroys the other so that it goes bankrupt. Here, you can use "Bis auf das letzte Hemd!"
I think "to the last shirt" is the literal translation, so yeah, this sounds like some kind of idiom, like "Mädchen sind nicht aus Zucker" which greatly amused me, and made little sense until my German friend explained it :P
It translates to: "Girls are not made of sugar" - which, according to my German friend, is intended to mean that they won't melt if they get their hair wet in the rain!
So, "bis auf" when they're together mean "except for", and one of the translations is "except for the last shirt", so that one makes sense. I think "down to the shirt on his back" means the subject doesn't have any more [clean] shirts except the one he's wearing. I have no idea how you get that english sentence from the german phrase though.
I have heard the "down to the shirt on his back" used in English and so I think they give that as the version of this common idiom in English.