What does it mean when someone says that a person is "not half-bad"? Does it mean they are half bad and half good?
This expression literally means that a person is more than half good...
...but that is not the commonly understood meaning. Saying this is the equivalent of saying, "That's pretty good." Most people that use this phrase do not actually stop to weigh out whether or not the subject is actually more good than it is bad.
As with most expressions, it is likely that it started with the literal meaning as the only meaning. However, time makes language like a game of telephone. One person uses a phrase, and someone that doesn't understand the phrase (or didn't hear it properly) assumes the meaning. When this continues, expressions like, "I could care less," are born.
So when you hear this phrase used, just know that the speaker is complementing something and move on. (Not everyone gets excited about the finer details of English.)