He's the uncle who constantly cracks jokes. While trying to lure nephews and neices into his van. For secret rides...
That uncle sure is funny. But he won't let go of my daughter. It seems kinda odd...
Another euphemism for the "confirmed bachelor" in a family or group. Although not necessarily a reference to homosexuality, it could be that the "uncle" in question is just eccentric, effeminate or prefers the company of his cats. It does not have pedophiliac connotations nor does it imply the man in question is of otherwise questionable character.
Examples from popular culture of the 1960s include:
.Floyd the Barber on The Andy Griffith Show, by Wally Cox
.Uncle Albert from Mary Poppins, played by Ed Wynn
.Uncle Arthur on Betwitched, by Paul Lynde
"He's a bit of a loner, kind of a 'funny uncle.'"
"He wasn't like the rest of the men in my family. He was the 'funny uncle' and the favorite of all us kids."