If you just say something smells, with no adjective, it is taken to mean that it smells bad. You can say, "Oh, but you smell nice." - compliment, positive. If, however, you say "Oh, but you smell!" - insult, negative. Some people try to say that 'smell' should only mean what you do with your nose (I smell flowers!) and that 'stink' should be used to express something badly. However, this is wrong. If something has an unpleasant smell, you can say both that it smells and stinks. Again, without a positive adjective, 'smell' as an intransitive verb is a negative statement.

You are right that "you really smell" by itself almost always means a bad smell. This sounds like it was done as a joke however where the person misunderstood.