A questionmale colleagues used to ask back in the old days before you could just go to Facebook and see all the details of how everyone's wives are doing.
It refers to a guy's external organs of reproduction. The answer should therefore be based on whether or not they are comfortably positioned in the undergarments.
"How's it hanging?"
"I'm fine, thanks! I just got out of the closet, finally I can express my true self instead of living a lie!"