IIRC it originaly refered to the Ottoman Empire prior to WW 1. The empire was in decline while the German, British, and French empires were peaking. The Brits dismantled it after the war.
The term was coined to describe the Ottoman Empire, that as Birdjaguar mentioned was on decline in the early XXth Century while the western european empires were at their best. The clear difference between the Ottoman situation and that of it's western counterparts lead to this pejorative term.
After WW1 however the term was occasionally used to describe whatever european power facing severe economic crises. Two decades ago they said that Britain was the sick man of Europe, now some say it's Germany.
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