This is such a big subject that it has its own field of study: gelatology, the study of laughter.
Generally, laughter is a response to what we can call positive emotions - joy, pleasure, amusement. It helps us generate hormones that further aid a positive mood, such as dopamine, so you get a kind of circle there - we feel good, which makes us want to laugh, and the laughter itself makes us feel even better. This may be why we sometimes laugh even when we don't feel like it, eg in stressful or upsetting situations, because the act of laughing can help us deal with the situation better. We show a recognition of this when we say things like 'You've got to laugh, haven't you?' when discussing a very difficult or unpleasant situation we are in.
It is thought that there is a relationship between laughter and language - most humour is based on language - and it is clear that different cultures play a big role in defining what people find funny. But there is a lot of research still to be done.