They think it's funny either if the insult was a joke. Or if they are bullies they think it's funny because they feel you can't do anything about the insult they told you. If somebody makes fun of you just ignore them. Your more smarter to just ignore there silly insult and walk away. You have more pride to not talk about the insult.
People think its funny to insult other people because they are trying to make the person(s) think its true so they laugh,if someone says something mean like that and other people around them laugh its most likely because they dont think its true so they play along..if your being insulted, and people are laughing tell an adult or teacher, dont allow people to rip you appart
One kid is insulted and laughed at so they feel alienated. To feel better about their loneliness, they laugh at other kids when they're made fun of and alienated. This cycle keeps going because parents aren't around for their kids to talk to anymore.
Sarcasm and satire have been effective weapons for thousands of years... it is deeply ingrained in Northern European culture, where strict codes of etiquette and hospitality are pretty much a defense against it.
Responding to another person's beliefs, views, or ideology with moral outrage seems to be in vogue, especially with authoritarians and conservatives, but it isn't nearly as effective as cutting satire and witty insults, especially when aimed upwards at people with power or who think they have power and are pompous or pretensions.
And quite frankly, when done well, it is very funny.