There are a couple of reasons to say that something is "not bad".

First, you can say that something is "not bad" if it's kind of OK, but not great. For example, if you watched a movie which was kind of fun, but didn't have great acting or story, you can say:

It wasn't bad.

THe other reason to say that something is "not bad" is when you're surprised by how good something is, like this:

That's not half bad!

"Not bad" used in this way is an example of understatement.