A good brief summary from Princeton’s Robert P. George:
The best resource I know on this question is Daniel Dreisbach’s Thomas Jefferson and the Wall of Separation Between Church and State (New York University Press, 2003).
For a good summary of this history and analysis, see his online piece, “The Mythical ‘Wall of Separation': How a Misused Metaphor Changed Church-State Law, Policy, and Discourse.”
Professor Dresibach begins by observing:
No metaphor in American letters has had a more profound influence on law and policy than Thomas Jefferson’s “wall of separation between church and state.” Today, this figure of speech is accepted by many Americans as a pithy description of the constitutionally prescribed church-state arrangement, and it has become the sacred icon of a strict separationist dogma that champions a secular polity in which religious influences are systematically and coercively stripped from public life.
In our own time, the judiciary has embraced this figurative phrase as a virtual rule of constitutional law and as the organizing theme of church-state jurisprudence, even though the metaphor is nowhere to be found in the U.S. Constitution.
Dresibach sets out “to challenge the conventional, secular myth that Thomas Jefferson, or the constitutional architects, erected a high wall between religion and the civil government.”
“Although today,” he writes, “Jefferson’s Danbury letter is thought of as a principled statement on the prudential and constitutional relationship between church and state, it was in fact a political statement written to reassure pious Baptist constituents that Jefferson was indeed a friend of religion and to strike back at the Federalist-Congregationalist establishment in Connecticut for shamelessly vilifying him as an infidel and atheist in the recent campaign.”
It’s not uncommon for advocates of the “high and impregnable wall” misunderstanding of the metaphor to suggest that Jefferson’s own policies were incompatible with his own principles (e.g., endorsement of federal funds to build churches, support of Christian missionaries among the Native Americans, etc.). But Dresibach shows that in Jefferson’s own thinking, the wall was not a separation between church and all civil government, but rather a wall between the national and state governments on matters related to religion.
For more on the metamorphosis of this metaphor in constitutional law and its repercussions, read the whole thing.