Its exaggerated, good natured sarcasm in the belief in an act considered impossible. Rather than being mean and disrespectful, everyone has a good time making up a lyric and adding it to the song. Instead of focusing on what they think is quite impossible they pretend to have seen other equally impossible things an everyone has a fabulous fun time full of laughter and good will. Meanwhile as an undercurrent to their unbelief lies the possibility that it may just be possible after all for an elephant to fly. In fact it may be possible for virtually anything to happen if we only believe strong enough for that thing to happen. And that my friend is awesome, indeed. "I saw a barn dance. I heard a dogs pants, ect.