All of the following concerns AmE only.
First of all, it isn't "What is up?". It's "What's up?"
It used to be (and often still is) a casual and friendly greeting similar to "What's new?" except that "What's new?" generally requires some prior greeting such as "Hello". "What's up?" can be interpreted as a request to know what is going on, or simply as an invitation to start a conversation.
In the last fifteen years or so, it seems to be evolving into a generic greeting with very few connotations, similar to "Hi", and people have started writing it as "Wassup".
Therefore, to answer your second question, if somebody greets you with "What's up?" you can start a conversation about recent happenings. Or you can just reply "Hi" or "Hello", and you can turn the tables by saying "Not much. What's new with you?"
I remember about a dozen years ago visiting a small American city and checking into the best hotel in town. It was certainly no five-star place, but it did claim to be the best in town and probably was. I approached the front desk and was astonished when the clerk turned around, smiled and said "Wassup." I'd been expecting something more like "Good evening, sir."
I wouldn't say "Wassup" is common, and many people would consider it dialect. But it is increasingly heard.
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