The meeting they were in was a very stressful one, in a very stressful era. The person who looked nervously at her to see her response was new to the group. Guessing based on his concern, he hadn't yet been "initiated" into a more casual relationship with the others in the room. He was still on a somewhat formal ground.
The person who made the comment was cutting through the unspoken fog underlying the meeting, and no doubt was intentionally using blunt language to assist in that.
She responded with mildly crude humor of her own to indicate not only that she wasn't taking offense, she appreciated the attempt to break through the unspoken fog. She was also bringing the new guy into the circle a bit.
The speaker continued with crude humor to sort of close the scene out. What a screenwriter would call a "button". It also emphasized his original point- "Let's get past this posturing we've been doing. We know what the game really is here, we're normal people and we've been fighting for our own interests."
That would be the end of that line of humor, since it had now served its purpose.
The same approach would usually (but not always) be inappropriate in a meeting of new acquaintances, but this was a different case.
This was an inner circle in a time of stress, bringing a new member a little closer in.