From "The Office" S2E13
Jim: Is it me or does it smell like updog in here?
Michael: What's updog?
Jim: Nothing much. What's up with you?
Where is the funny point?
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"Dog" or "dawg" is a slang way to talk to a close friend (especially in some American cultural dialects)
So "What's up dawg?" means "How are you, mate?"
The joke is, Person A says "It smells like updog." (updog is a made up word). Person B doesn't know the meaning of "updog", so he asks "What's updog?" Person A has tricked person B into saying "What's up dawg?" in a casual slangy way. It is the trick that is the joke.
Don't try to emulate, and start calling your friends "dawg" it won't come across as natural.