Many people who use this phrase also say things like 'I'm not racist but...' and 'I have lots of gay friends'. Generally, it's a phrase used by morons to show their displeasure at probably apocryphal levels of political correctness that they read about in their newspaper, very possibly either the Daily Mail or the Telegraph. You know the kind of thing: man sent to jail for life for calling a black man a wanker, or something. Cue general tut-tut-tutting and well-I-nevering and total loss of capacity to distinguish between media exaggeration and reality, which is usually much more disappointingly reasonable.
Political Correctness can, of course, go too far. But if the alternative is the kind of society in which casual racism is never questioned, in which real racists or sexists or homophobes can get away with making other people's lives hell through genuine prejudice because it's nigh-on impossible to distinguish them from everyone else, I know which one I choose. And as silly as it can get, it's a kind of necessary over-compensation to set against the kind of society we had before and still haven't entirely escaped from now. The past matters: there's no getting away from it. The wounds of a racist and sexist history don't heal as quickly as we'd like them to, and if we're just a little more careful in the language we use now we'll live in a truly equal society, where people really don't care about the colour of someone's skin or their gender or their sexuality, much sooner. Here's something Clare Short said:
Political correctness is a concept invented by hard-right forces to defend their right to be racist, to treat women in a degrading way and to be truly vile about gay people. They invent this idea of people who are politically correct, with a rigid, monstrous attitude to life so they can attack them. But we have all had to learn to modify our language. That's all part of being a decent human being.
That sums it up pretty well, it you ask me.