If taken in isolation; it seems to refer to instructions for some kind of meditation, or meditative prayer.
It contains two aspects: be still surely refers to what we need to do. Presumably we should cease to move physically, and stand, sit or lie still.
But implicitly we should also still our minds - that is, cease to be distracted both by external 'inputs' and by internal 'chatter' of the associative chit-chat of memories, speculations and day-dreams.
But and know that I am God - might imply two almost opposite things:
It might mean that when you are still you will attune-with the stillness of God - and therefore achieve some awareness of a divine state that is unchanging, timeless, peaceful.
Reality is still - and if we are also still, we might experience reality.
So, by our stillness we can know the stillness that is God.
But I understand the phrase to mean something very different indeed: that when we are still, we can know the presence of God as a living, changing, active Being: a person with us
It is our stillness that allows us to become aware of God's moment-by-moment creating of the world, of reality. It is this contrast, not a similarity; which enables us to experience the presence of God.
We may briefly become still - but God is never still.
Thus, by our stillness we can know (by experience) the dynamic, living consciousness of God; God in our presence here-and-now.