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You say this when you don't know where something is, you actually ate it, or you're just being a smug bastard who knows where it is and won't tell them. It's also what you say when you're eating a girl because she's hot and you're a gross animal.
My mom asked where my phone was. I said 'I ate it.' She said 'You ate your phone?'
My brother asked where the keys were. I said 'I ate them.' He threw a couch at me.
My friend asked where my sister was. I said 'I ate her.' She showed up 10 minutes later with a stomach ache.