What does 'There's more to this hobbit than meets the eye' mean?

Answer 1

Hobbits, at first glance, don't appear to be very capable/strong because of their lack of size. However, as Frodo, Bilbo, Sam, etc prove, you can't merely judge hobbits based on their size because they are actually extremely able people that can surprise you.

All true, but it was a specific statement. Gandalf said it of both Bilbo and Frodo. After Bilbo was able to escape the orcs and Gollum and after Frodo was skewered in Moria. Both times Gandalf had a suspicion they were keeping secrets, but he left it up to them to explain.