Me: Are you an alien?
Friend: No.
Me: Yeah, because you're too ugly to be one.
Me: Are you an alien?
Friend: No.
Me: Yeah, because you're too ugly to be one.
Alright, listen up, buttercup. The joke is that the person is calling their friend ugly by saying they're too ugly to be an alien. Get it? Probably not, you are probably a mouth breather. Anyway, aliens are often portrayed as weird-looking so it's a creative insult.