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In Naked Gun 33 1/3: The Final Insult (1994), Frank is cop who is trying to disarm the bomb at Academy Awards Ceremony, After knowing bomb is planted inside Best picture envelope, So he somehow get on the stage & announces the "bomb" after opening the envelope. For this "Sawdust and Mildew" movie team stands up to receive their award.

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Why "Sawdust and Mildew" thinks they are winners for Best Picture category?

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It's a joke!

It means that although a movie is critically appreciated it's not successful financially.

In the motion picture industry, a "box office bomb" or "box office flop" is a film that is considered highly unsuccessful or unprofitable during its theatrical run, often following significant hype regarding its cost, production, or marketing efforts. Generally, any film for which the production and marketing costs exceed the combined revenue recovered after release is considered to have "bombed".

Wikipedia

The joke here is that the producers of Sawdust and Mildew think they have won because the announcement was "bomb" so they think it's their film that's won.

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