If you say to someone " I miss you." Is it correct if he/she replies "You too." ? Is is like shorter version of " I miss YOU TOO?" Very confused about this one. Help please.
You have it exactly right. If a person replies "You too" it is short for "I miss you too."
Not sure why you are confused. The only thing that comes to mind is a desire to avoid any ambiguity in such an important emotional context. Nothing wrong with that. When in doubt, play it safe and use the full expression rather than the short form.
I normally use 'you too' only when 'you' is the subject, stated or implicit, of the words addressed to me. If it is not, I reply more fully:
Have a good time. ...... You too
Enjoy yourself....... You too.
Good luck....... You too.
You look good today....Y.You (do) too.Y...
I love you....... I love you, too.
I'll miss you....... I'll miss you, too.