There are various definitions for this phrase, but basically:
A description of a real world circumstance that is so insane, illogical and utterly unbelievable that any sane person must come to the conclusion that the world we live in is run by clowns!
EXAMPLES:
People running things are funny, but not "Ha Ha" funny
You can't help but feel like reality is becoming nothing more than a grotesque freak show
Trump, The President of the United States, gets his star removed on the Hollywood Walk of Fame...but Bill Cosby, convicted rapist, gets to keep his?
Drag Queen story hour for children.
Chicago High School Spends Over $50,000 Replacing Year Book Because Some Students Did the ‘OK’ Hand Sign
Put another way:
“Clown world” is used to describe instances of abasement that at any other point in history, to any person of dignity, would be regarded as incomprehensibly evil or stupid—so outrageous that they must be a joke. State-enforced sexual transition hormones for children! Drag queen story hour! Voting rights for terrorists!
And like so many memes, it originated on 4chan.