It's fishing for compliments, pure and simple.
It doesn't just apply to looks (which I'll admit to being insecure about, regarding scarring on my chest and one leg, and having suffered acne until well into my 30s). Some days I feel hot, others...blech. But the correct reply to a compliment is always "Thank you." Choose to believe it, choose to disbelieve it, but say "Thank you." You can't go wrong.
I'm sick of pretty women refusing to acknowledge their prettiness and as this is a writers' site, I'll say too that I'm sick of writers refusing to acknowledge their talent and, what's more, their success. "Oh I'm so insecure, I don't know if I can do this, please feel sorry for me, it's so hard having all this pressure on me to come up with the goods."
Oh cry me a fucking river. Yeah, it must be so hard to be attractive, and so hard to be successful.
I've got no sympathy for people like that. They're wearing; emotional vampires, the lot of them.
If you brush off a compliment, you're calling the other person a liar. Either that, or you're jonesing for another sycophant-fix.