What does Isaiah 7:17 mean?

The news Isaiah delivered to King Ahaz would have been the best news he could have hoped to hear (Isaiah 7:16). But Ahaz refused God's command to ask Him for a miraculous sign (Isaiah 7:12). Through this action he essentially rejected the Lord's offer to protect Judah from the kings who wanted to take Jerusalem and remove him from the throne (Isaiah 7:6). Based on the reaction from God, it seems Ahaz was not being faithful, but stubborn. He didn't want to see God's confirmation because he'd already made up his mind to do as he saw fit.

Isaiah has responded to this rejection harshly. Then he gives Ahaz the good news, that within a very few years the lands of the two kings Ahaz fears will be deserted (Isaiah 7:16). In other words, both the northern ten tribes of Israel and the nation of Syria will be defeated. Ahaz doesn't need to worry about them.

Yet this good outcome will come about because of the terrible events which make it possible. It's true that Assyria will destroy both of Judah's enemies: Israel and Syria. But Assyria, and Egypt, will also terrorize Judah. The Lord will use those two nations to make things worse in Judah than they have been since Israel divided into two nations. This is referring to when Ephraim departed from Judah.

The verse ends Isaiah's dramatic revelation of who will bring terror on Judah: the king of Assyria himself. The irony for Ahaz is that he had hoped to protect himself from Israel and Syria by becoming an ally of the king of Assyria (2 Kings 16:7–9). He had put his faith in this instead of trusting the Lord to protect Judah. Now Assyria will bring worse destruction than what Ahaz was dreading in the first place.