I use this word when I find someone sweet and adorable but not really in love with them.nothing more-nothing less.I bet most people tell this to someone they like as a person mostly but not in a sexual way.
I think it would depend on the person saying it & on the person receiving it. But most of the time, to me, I say it when I:
1. Find a person attractive & fun, I'm interested in them
2. I think they are fun & silly, would like to be friends with them
3. I think they are cute...just cute!
I would hope that a person could tell what I mean in the context & situation that we are in, how I mean it. I think I can when I receive it. If anything, I error on the side of, eh, they just think I'm funny.
I think they think I'm cute like a little kid, if that makes sense? Like kids are cute, pets are cute, that sorta thing. So when someone calls me cute, I seem to think they see me as a little kid, not really dating material. That's just me though :)
I usually think they are complimenting me on my personality or they think I'm attractive in a youthful, adorable, babyish way but would not date me because they prefer a more manly looking guy who they think of in a sexual way.