A phrase used to ask about something odd, or what the point of something is. The word "that" can also be replaced with whatever noun the person is asking about. It is also common to inerject the word "fuck" into the phrase to express shock or discust.
What's up with the smirk?
Look at all those bags on the road. What's up with that?
Person1: What the fuck's up with your hand!?
Person2: Ahh! Why are you just standing there?! Take me to the fucking hospital!