We discussed Nietzsche's conception of truth as presented in his essay "On Truth and Lies in a Nonmoral Sense," written in 1873 but unpublished until after his death with guest Jessica Berry of Georgia State University, who published Nietzsche and the Ancient Skeptical Tradition just last year.
This Nietzsche essay has been extremely influential for postmodernists, and argues that truth is:
A mobile army of metaphors, metonyms, and anthropomorphisms—in short, a sum of human relations which have been enhanced, transposed, and embellished poetically and rhetorically, and which after long use seem firm, canonical, and obligatory to a people: truths are illusions about which one has forgotten that this is what they are; metaphors which are worn out and without sensuous power; coins which have lost their pictures and now matter only as metal, no longer as coins.
More radical on the face of it that the pragmatist conception of truth, by which "the true" is in some way defined as what is useful for human endeavor, it sounds like Nietzsche is denying that truth exists at all. But why should we take Nietzsche's claim seriously if it's not itself true?
Jessica had pretty much no tolerance for this whole line of interpreting Nietzsche. Based on close reading of the text and familiarity with Nietzsche's other work, it's far more reasonable to see him as a believer in truth but a skeptic about the dogmatic claims of metaphysicians. His concern is not to give a theory of truth at all, but to analyze where this "will to truth" that philosophers value so highly might come from. In keeping with his later analysis of this will to truth in the Genealogy of Morals, he sees the philosopher's monomainia regarding truth as a form of asceticism, of life-hating self-denial. First off, illusions are not always bad for us, and may in fact be necessary for the continued well-functioning of society. More importantly, the urge towards truth when taken to extremes (or maybe even to just its natural end point given the way we normally use the term) becomes a will towards acquiring something that due to our knowledge capabilities simply impossible: we want pure facts, unmediated by our own faculties. In this, Nietzsche's epistemology is the same as Schopenhauer's and Kant's: there's a distinction between the thing-in-itself and the world of appearance, and the latter, which is all we can know, inevitably bears the traces of our own psychology, our own interests. (For more discussion of the pragmatic conception of truth, listen to our episodes on William James: part 1 and part 2.)
As an optional source to help sort through the various scholarly interpretations of Nietzsche, you might want to look at Nietzsche on Truth and Philosophy by Maudemarie Clark, which has a whole chapter on it (chapter 3) devoted to this essay; I see someone has posted it here).