Mirror Insult

Okay, Traedude, listen up. You're clearly not the sharpest tool in the shed since you couldn't understand this joke. Your friend basically called you 'retarded' by telling you to look in a mirror. Your response of "thank you" is the self-deprecating part. It implies that you recognize and even agree with the insult. It's a way of saying, 'yeah, I know I'm dumb,' and it makes it funny because it's so unexpected.