How to teach a three year old the difference between the truth and a lie?

Well like you said he first needs to learn what the words "lie" and "truth" mean before you can expect him to obey when you say he needs to not lie and to tell the truth. I'd try something very simple- tell him you are going to tell him something and he has to decide if what you say is a lie or if it's true. Then just hold something in your hand, like a hat and say something like, "mommy is holding a puppy!" And ask him if that's a lie or if it's true, helping him out so he learns the difference. Mix it up some and have some statements be true and some lies. Then once he really understands what a lie is and what the truth is explain to him that telling a lie is and it can hurt people so it is not ok. (If that doesn't work, soap in the mouth always did the job on my sister and me! Lol)