For many jokes or humorous situations, one participant may be singled out as the butt of the joke.
The butt usually ends up being the target of the joke, the person that is being made fun of. An extreme example of the butt of a joke is a roast where a comedian is singled out and honored by other comedians, mostly through insults and reminders of embarrassing past events. A more common example would be someone in a group that is singled out and made fun of, though the butt may or may not be present.
Let us look first at an instance in which the butt of the joke is present. In this excerpt from Whose Line Is It Anyway? all four comedians are involved. They are supposed to act out short scenes that the mediator pulls out of a hat. The scene they are acting out here is "your worst nightmare."
If present, the butt of the joke has two options: they can accept their role as the butt or they can refuse it. If the butt of the joke maintains involvement in the humorous exchange and allows themselves to be made the butt of the joke as Clive does here, the attempted humor results in a felicitous outcome. If the butt of the joke refuses to be made the butt of the joke, the outcome is no longer humor, but mockery or ridicule that results in a loss of face on both parts. Note also that a jokester can use himself as the butt of his own joke, making fun of himself in an effort to make others laugh or even align people with each other.
If the butt of the joke is not present, the jokester runs the risk of insulting the butt and receiving the disapproval of his listeners. When the potential for failure is evident, it becomes difficult to figure out why humor is attempted in this manner in the first place. At a higher level, I see using the butt of a joke as a rather Machiavellian tactic for aligning people. Whereas Machiavelli pointed out in The Prince that a ruler could unite disparate peoples by presenting them with a common threat or enemy, a jokester may also align people by presenting them with a common butt that everyone can laugh at.