I got lucky with my MS and my agent, she only had very slight changes for the book but it was essentially ready to go aside from that, so she was very curious about what else I'd been working on. I had a few things going, including a finished middle grade novel (she doesn't represent that), a submission package I was putting together for Image Comics, and a historical fantasy/weird western. I just laid all that out, and she seemed happy with how busy I was keeping myself, even though the middle grade project wasn't one she could help with. The other two, however, were still potentially in her wheelhouse, so yeah, basically when an agent asks what else you've got going, it's really to see whether you two are still closely aligned in terms of future projects.

If you were primarily a middle grade writer, but then decided to take a break and just whack out a YA or adult genre novel just to see if you could, but your heart was really in MG and THEN you got offered representation for that experiment... yeah, that's where things would get awkward.