胆小 (small gallbladder) + 鬼 (ghost/devil) = a person with a 'small gallbladder', i.e. no guts. In Chinese, courage is associated with the gallbladder (胆).
usage
胆小鬼 is an informal insult, similar in tone to 'chicken' or 'scaredy-cat' in English. It can be playful among friends or genuinely hurtful.
