It's not that they knew what you were doing exactly. They could feel what you were feeling, and as the lie you were contemplating brought you down, they felt that drain themselves, and thus became more confused and unclear---which was an unconscious signal to them that something was wrong, and that you were probably up to no good. So they backed away.
In this passage, the author explains that people often do not understand the specific actions others are taking, but they can sense the emotions behind those actions. When someone feels guilty or dishonest, their emotional state affects those around them, causing a ripple effect of confusion and uncertainty.
The quote highlights that this emotional feedback acts as an unconscious warning to others, signaling that something is off or suspicious. As a result, observers tend to distance themselves, sensing that something is amiss even if they don't fully grasp what is happening.