First you have an association of anything bad with excrements. This is cross-linguistically fairly common, and really old*.

From that “shit = bad” meaning, you got semantic amelioration generating the “the shit = the best”. English slang does this fairly often; refer to “sick”, “dope”, “wicked” doing the same. I’m not sure but I think that the underlying process is:

• “shit” as “extremely bad” →
• “shit” as “notably, outstandingly bad” →
• “shit” as “notable, outstanding” →
• “shit” as “noteworthy, good”

That also explains why “it ain’t shit” is generally negative - it conveys “it isn’t noteworthy”.

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*It’s so old that one of Martial’s Epigrams (liber III, epigram 17), in 1st century Latin, already shows this:

Circumlata diu mensis scribilita secundis urebat nimio saeva calore manus; sed magis ardebat Sabidi gula: protinus ergo sufflavit buccis terque quaterque suis. illa quidem tepuit digitosque admittere visa est, sed nemo potuit tangere: merda fuit.

A tart [scribilita], passed and passed around at dessert, cruelly burnt our hands with its excessive heat. But Sabidius’ greed was more fiery still; so forthwith he blew on it with his cheeks three or four times. The tart cooled to be sure, and seemed ready to admit our fingers, but nobody could touch it. It was filth.

I’m copypasting the translation out of laziness, but… it is not accurate. “Merda” is not just filth, it’s literally “shit” - and it’s metaphoric as you’d use in English “that cheesecake was shit”, same shit here.