A compressed version of "laugh out loud but serious".
It can be used to acknowledge an amusing element and then assert a level of importance and earnestness regarding the subject of discussion.
In other words, it is the equivalent of "I find that amusing however my question or statement was genuine".
Jed: "How hard is it to pass that maths exam?"
Nick: "I'm hard right now."
Nick: "Oh. Er... Yeah it's alright I guess..."