So there is someone who doesn't know what an armadillo is.
He then sees one. He asks it a question, "What are you?"
The armadillo replies, "Armadillo."
The person says: "What's a dilo?"
Alright listen up, dummy. The joke is that the dude doesn't know what an armadillo is, so he just asks what it is. The armadillo answers "Armadillo" and the dude thinks that the last part of the word is the name of the creature, so he asks "What's a dilo?" I bet you ask what 2+2 is!