If you do not know the person, then they are asking in the form of a greeting. You would just give a short response, such as "I'm well, thank you. You?" or "I'm doing okay. You?" etc. If you know the person well, they probably want to know how you really are.

It's safest to assume it's being said just as a greeting, especially if you don't know the person very well. It's something most of us say as a friendly social habit, without thinking of the meaning.

Possibly both. They might say it as a greeting and expect a short answer, or they might generally want to know how you're doing.

Thanks Vitaly!

They expect to hear an answer "I'm good, how are you". That's the extent of their interest. It's a sort of culturally-loaded greeting, a fake expression of interest. Never answer in a non-positive way, they will be totally thrown off.