Someone is speaking too loudly (or acting in an exceedingly demonstrative manner). You wish him to calm down a bit. Thus, you say, "Take it down a notch." (Think of turning the volume knob a bit to the left.)
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Thanks for your advice!
Actually this comes from an article in Time Magazine "Barack Obama, stop ruining my marriage".
The writer is admiring Barack Obama because he is taking out his wife on date night (too often in his opinion). So he says "take it down a notch, dude".