cough cough is used to subtly imply that you know something that someone else doesn't. The person who it is "used on" will then begin to suspect something is suspicious with the phrase "cough cough" and will begin to wonder what it means. Mostly, "cough cough" is pronounced as a word, instead of being actually "coughed out".
Harry: "Hey, I heard Sue went out with Mark"
BoB: "oh yeah, cough cough"
Harry: *wdf, does he know something that I don't? Holy crap he's H@Rd<0R3*
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