What does “wa iyyakum" mean?
"Wa iyyakum" means "and you", It's most used in response to "Jazak Allah Khair", which makes the conversation:
pckabeer: Jazak Allah Khair (May Allah reward you with goodness)
Mr.TAMER: Wa iyyakum (And you)
In it's form "Wa iyyakum", it responds in the plural, i.e, you reply to a group of people. However, it's obvious that I used "Wa iyyakum" even though pckabeer is a single person (supposed to be, at least :D ), this is because in Arabic, it's of respect to speak to a person in the plural form - and also if someone is speaking about himself in the plural form, then he is very self-confident and proud, hence Allah says:
إنا نحن نزلنا الذكر وإنا له لحافظون
Indeed, it is We who sent down the Qur'an, and indeed, We will be its guardian.
Of course, Allah is speaking about himself without companions, this is a part of emphasizing in that aya which assures that the Qur'an never changes.
So as mentioned it's "attached" with meanings of respect, so it's not appropriate to say it in response to harm or insult, it's said only in response to good words, specifically Dua'a.
Please note that this is a personal-experience answer, no citations included because it's not a part of Sharia, it's only a good convention (like Salam).
I think it is good to also add that according to the context "wa iyyakum" can address an warning, for instance: 17:31 or for instance this hadith posted by me: "عليكم بألبان البقر و سمنانها ، و إياكم و لحومها " here: http://islam.stackexchange.com/questions/38727/did-any-scholars-or-companions-forbid-eating-cow-meat
"wa" is for "and", here means "the same"
"iyya" is for "to" (returning something)
"kum" is for you all"
So, "wa iyya kum" means, "The same is for you all". This is used or can be used in the return of greetings.
This words should be used to return greetings preferably from Non-Muslims who greet you with ambiguous or unclear wordings. Though, it can also be used for return of general greetings.
But the preferred and best way to return salam is "Wa alaikumus Salam", speaking the word salam in return. Allah knows best.