Said to someone who fails to comprehend his or her own present situation. Often perceived as a misinterpretation of past events or activities. It is advisable to remind the person in question (if you appear to be in verbally discernible range), of his or her mistake to avoid any forthcoming embarassments on his or her part.
(Brief exchange prior to an imminent Science Test)
Karl: Hey Ev! *shakes his hand* Fail with honor!
Evan: Thanks. You too.
Karl: Ayan! *shakes his hand* Fail with honor!
Ayan: What?! Hey, I'm passing!
Evan: Haha, head up in the clouds Ayan!