A lot of it stems from 3 large points

• The success of Germans early war in 1939 and 40 where they steamrolled Europe at a rate that completely shattered morale of troops

• Wonder weapons that, while small in numbers and overall adversely affected the German war effort, created such a reputation for themselves being impenetrable bunkers that they became immortalized (see Tiger, Tiger II, Jagdtiger, etc)

• Popular culture and largely regarded misconceptions. Things like Belton Cooper's Death Traps which is considered and invalid source and most armor historians would laugh at anyone who cites Cooper and his infamous "Ronsons"

As a note, I'm much more knowledgable in the armor side of things so that'll be where I generally hover.

So starting from the 1st point, German Blitzkrieg was a very effective tactic against the armies of Europe which were largely still focused on slow, deliberate, and meticulous planning and execution of both offensive and defensive operations. A good example would be the French. The French Char B1's and Souma's were heavily armored, were long, with thin tracks, had a small crew of only 3 (in comparison to the 5 of Pz. III's and the limited Pz. IV's). While these tanks were near impervious to the KwK 36 37mm fire of the Pz. III's, they were slow and designed for trench warfare which they very much expected to happen. While formidable opponents (such as the story of a single Char B1 destroying 13 German tanks and remaining completely operational) they were slow, had small operational ranges, and lacked proper communication equipment (radios) to react to enemy maneuvers that may be happening several miles down the road from them. Like I said, the effects of having nearly all of Europe conquered in a 9 month period has a very powerful effect.

Now for the wonder weapons that people so love to talk about, the Tiger, King Tiger, Jagdtiger, Panthers, and so on. Its simply word of mouth and a few battles solidifying their history as killing machines. For example, when the D.A.K first received Tigers in Tunisia, they were impervious at nearly all ranges to every tank gun the allies had with the sole exception of the 17pdr which had, at the time, only been a towed anti-tank gun. This gave the Tiger a terrifying appearance, but the D.A.K had only been issued something like a dozen (I forget the exact number) so they were relatively rare beasts. Little did the allies know that before that 1st battle, 2 tigers had already broken down, one driving off the boat at the docks, and another broke on the side of the road while driving to the action. But these things weren't known, and when word of mouth spread that there was a tank that was basically invincible and could obliterate their armor at practically any range, every tanker feared it. You didn't want to run into a Tiger, hell no! This created a thing where many allied tankers misidentified tanks that they were shooting at and shooting at them. Many Pz. IV's were misidentified as Tigers and thus treated as such, when there might not even be a Tiger close to the battle. The King Tiger was similar, commonly being misidentified for the more common Panther.

The final point is pop culture. The Nazi's were a perfect villain. They had black and red imposing uniforms, Hitler was loud and shouting in public speakings, they seemed fanatical, and they were powerful. From that perspective the US, UK, and USSR didn't stand a chance, but we came through in the end and defeated the villain. That atmosphere is what gave birth to Captain America, the Nazis are the perfect villain.

Now from here I'll point out two very influential books and two books that should be taken as nothing but what they are, an autobiography.

Tigers in the Mud by Otto Carius and Death Traps by Belton Cooper. Tigers in the Mud succeeded in romanticizing the Nazi Germany and their technology in general. It gives the perspective from the other side by someone who wasn't affiliated with the Waffen SS, and overall made them look much more human and relatable. Not to say that they weren't but they became much more likable by your common Joe, and it was published at a time where the memories of WW2 weren't fading, but they were quickly becoming replaced with fears of the USSR as the Cold War onset and Korea looked like WW3 was about to break out.

As for Belton Cooper, how his book came to be as well known as it is I can't say, but everytime someone cites him I can feel General Abrams rolling over in his grave and I don't blame him. So I'll take my time and break down some general misconceptions about the Shermans. By no means was the Sherman a bad tank. It had better armor than any equivalent German tank (the Pz. III, Pz. IV, StuG), the 75mm was more than capable of dealing with the former tanks mentioned, it was only at a disadvantage against the Tigers and Panthers both of which were relatively rare in against the numbers of smaller Panzers. When some Shermans began to get equipped with the M1 76mm armed T23 turret, they now outclassed all other German contemporaries in armor and firepower, being roughly equal in mobility if slightly better. The 76mm firing monobloc AP also had the ability to pen the front plate of a Tiger up to around 1300m, which was a serious upgrade from the complete inability of the M3 75mm. The Panther's mantlet was also vulnerable at similar ranges to the AP, but it's hull was still immune. Testing against captured Panthers later found that the APCR of the 76mm and the 17pdr possessed the penetration to combat Panthers within 600m or so, hence why the Firefly modification is such a famous tank because the British came with Firefly's to Normandy, where the US didn't begin retrofitting Shermans with the M1 76mm until later the same year. With the introduction of the M26 Pershing early 1945 through Operation Zebra, the Allies now possessed several tank platoons more than capable of dealing with anything that the Germans had in Europe with the exception of the rarest vehicles, that being the King Tiger and Jagdtiger.

Addressing the ever so popular MYTH that the Sherman's nickname was the Ronson after the GI's lighters as it "Lights first time every time". The Ronson was never the standard lighter for GI's, it was the Zippo. The Ronson ad "Lights first time every time" was a post-war advert from the 50's. The Shermans notorious burning reputation is a few things. Early in the usage of the Sherman by the British, the British crews had a tendency to load FAR more ammunition than what could be safely stored. Many crews coming from the Valentines, Crusaders, and Churchills were used to having over 100 rounds easily, many of the vehicles armed with 2pdrs or 6pdrs (40mm and 57mm respectively) could store much more ammunition as they were smaller rounds. When they got the Shermans, only carrying around 85-100 rounds, they started loading extra ammunition and thus the tank was more prone to fire. With the traditional ammo stowage the Sherman burned about as easily as any other tank, around a 20-25% chance which matched Panthers, Pz. IV's, Tigers, T-34's, and so on. With the "wet" racks that later Shermans had which stored the ammo on the floor of the turret basket in a water filled box which significantly decreased the chance of ammo catching fire, around a 5-10%.

This is apparently too long so second part is a reply to myself

I think the origins of the idea are due to the fact that so much of our perspective comes from the Allied experience, and that it is still greatly affected by contemporary perspectives (ie, the opinions circulating at the time).

The Fw-190 was greatly superior to British fighters for quite some time until the Spitfire IX came into service, and then it was in short supply for a while. The Luftwaffe also tailored its tactics to take maximum advantage.

Much of our perspective on German armour comes from the two months of the Normandy battles, where the Tiger and Panther were greatly superior to Allied machines. Most reddit discussions on this will attract someone who can 'prove' the Sherman was as good as a Panther (by comparing stats), accounts by guys who did the fighting are most repetitious: Tigers and Panthers in small groups would fight on and on, withdrawing with multiple hits, while Allied crews first realised they were in combat when their tanks exploded. Fireflies did have the gun needed, but there were not enough and the Germans would pick them off where possible.

Examples of the German 'luxury' tanks decimating Allied attacks include Villers-Bocage (although Wittman's ride was exaggerated by propaganda, Allied 6-pdr and 75mm guns were completely ineffective with the ammunition issued); Cuverville (Schwere Panzer Abteilung 503) July 11, Cagny July 18 (and Operation Goodwood generally); Schwere Panzerjaeger Abteilung 654 at Hill 226 on July 30 where two squadrons of Churchills were destroyed by Jagdpanthers; north of Vire a couple of days later where a few Tigers met Allied Cromwells and Shermans.

Now of course, as you have noted in the issue of the Sherman's reliability, there is more to winning a war than having the thickest armour. The Germans lost tanks to air strikes, artillery, breakdowns. The Allies had crunched the numbers better and knew how to 'write down' enemy forces without having to do it all in gun-to-gun combat. But for the Allied soldiers whose stories we are most interested in, the experience of armoured war against the Panzer divisions was not a pleasant one.

One final point needs to be noted. When Germany moved to massively expand tank production in 1942 after the failure at Moscow forced the Nazi leadership to recalculate their assumption of a short war, they also crunched the numbers and knew they could not hope to match the industrial output of the USSR and USA (and Britain, whose industrial effort is always forgotten but was itself comparable to Germany's). So the deliberate decision to build weapons of superior quality was taken, to give the Wehrmacht an edge.

The subsequent move to 'Total War', full industrial mobilisation, after Stalingrad, forced Germany to 'freeze' production because she was forced into mass production of the designs of the time, for which she could immediately tool up the factories. This meant tens of thousands of Messerschmitt 109s, and thousands of PzIVs, StuGIIIs, and even PzIIIs, all of which were approaching obsolescence. So the 'quality edge' plan did not have the impact intended.

Sources:

Panzers in Normandy Then and Now Eric Lefevre

Operation Bluecoat Ian Daglish

The Wages of Destruction: the Making and Breaking of the Nazi Economy Adrian Tooze.