I'm jacking Yura Sklyar's original post about Picasso and just presenting this quick paragraph about the source of meaning "Good artists copy, great artists steal."
The saying originated from T.S. Eliot who said:
One of the surest tests [of the superiority or inferiority of a poet] is the way in which a poet borrows. Immature poets imitate; mature poets steal; bad poets deface what they take, and good poets make it into something better, or at least something different. The good poet welds his theft into a whole of feeling which is unique, utterly different than that from which it is torn; the bad poet throws it into something which has no cohesion. A good poet will usually borrow from authors remote in time, or alien in language, or diverse in interest.
-Eliot, T.S., “Philip Massinger,” The Sacred Wood, New York: Bartleby.com, 2000.
I got this excerpt from this Nancy Pragers Post. Read some of the comments too! They give more information on the evolution of the misquoted Picasso.