The Celestial Phoenix is a fabled kung fu title that is said to surpass the level of Dragon Warrior. According to Shifu, it is such an ideal level that the purpose of the legend is simply that it is impossible to obtain, and merely serves as a metaphor to the constant need of training and practice.
The Celestial Phoenix title was first mentioned in "Kung Shoes" from Legends of Awesomeness by Shifu. As he explained to Po, this ranking is a level higher than the Dragon Warrior and is impossible to reach; if one should ever obtain this ranking, their training would be done. He then described how being the Celestial Phoenix was obtained by passing the "three needles" test, which tested the precision only the Celestial Phoenix would possess. In the test, the Celestial Phoenix would take three needles, toss them in the air, and kick them with such precision that one needle would pass through the eye of the second needle, and then hit the third needle straight down the middle so it splits. Shifu spoke of how the the test was impossible, and therefore no one could ever achieve the level of the Celestial Phoenix.
Determined to get out of training, Po eventually bought some magical Kung Fu shoes that enhanced his Kung Fu abilities "a hundred fold". When he wore them at the beginning of training the next day, he asked Shifu if he could try the three needles test. Shifu explained that the Celestial Phoenix test was simply a metaphor, but decided to humor the panda and let him try. Po then flawlessly demonstrated the three needles test to Shifu and the Furious Five multiple times, leaving them in awe.
Later, Master Chao visited the Jade Palace to see Po demonstrate the feat of the three needles, and also explained that, as the Celestial Phoenix, Po would have to leave the Valley of Peace to travel the land and enlighten others with what he'd learned. Shifu and the Five also congratulated Po, with Shifu commenting that perhaps one day he could learn from him.
Guilt-ridden, Po then confessed about the power of the shoes and how it made his extraordinary achievements possible, and apologized. After learning that Shifu and the Five had known this along, the panda came to understand the meaning behind the legend of the Celestial Phoenix, in that one's skill was only part of them if they earned it, and that no warrior's training ever ends, including that of the Dragon Warrior.