'to take the piss' = 'to take the mickey' = 'to pull the leg' = to joke with / about someone, to tease. 'are you taking the piss asking this question?' means: are you joking with me rather than being serious?

Taking the piss is a British term meaning to take liberties at the expense of others, or to be unreasonable. It is often used (or confused) with taking the piss out of which is an expression meaning to mock, tease, ridicule, or scoff.[1] It is also not to be confused with "taking a piss", which refers to the actual biological act of urinating. Taking the Mickey (Mickey Bliss, Cockney rhyming slang) or taking the Michael is another term for making fun of someone. These terms are most widely used in the United Kingdom, Ireland, South Africa, New Zealand and Australia. Source, Wikipedia.

No it doesn't mean to laugh at someone. If you told someone a story, and they responded with 'Are you taking the piss ?' it just means that they can't believe what you have just told them(although the story you have told them could well be true, they find it hard to believe). They feel as if you are playing a trick on them and that the story seems really farfetched. It basically means that they are gobsmacked at the story you have just told them.

Taking the piss is a British term meaning to take liberties at the expense of others, or to be unreasonable. It is often used (or confused) with taking the piss out of which is an expression meaning to mock, tease, ridicule, or scoff.[1] It is also not to be confused with "taking a piss", which refers to the actual biological act of urinating. Taking the Mickey (Mickey Bliss, Cockney rhyming slang) or taking the Michael is another term for making fun of someone. These terms are most widely used in the United Kingdom, Ireland, South Africa, New Zealand and Australia. Source, Wikipedia.