Context can be referring to a piece of literature or say a social situation.
If literature: it means that you should look at the other sentences of the passage to determine the meaning of a word or phrase. Using surrounding words, images, and metaphors, to infer what the passage is trying to convey. We usually call this "using context clues". It's a method to clarify something you don't understand in literature without using other sources (dictionaries, the internet)
if it's a social situation: then it implies observing the reactions and behaviors of those around you (the context) to determine say someone's mood, the reason they said something, or why they responded a certain way. (this is a psychological point of view)
Unrelated to your question but still important because you're learning English: "working out" in other contexts can mean going to the gym to lift weights/do cardio or two people trying to fix a problem with their relationship "We got in an argument last week, but we're trying to work things out"
hopefully this isn't too confusing :]