Well, since "hola" means "hello," you can respond by saying something like "hola" back. If someone that you just met says this, you could respond with "Hola. Me llamo (your name). ¿Cómo te llamas?" This means "Hi, my name is (your name). What's your name?"
It means hi, how are you? some people might say that it means what's up? but what's up? has a different phrase. hola, como estas? (hello, how are you?) Que tal? (how's it going?) Edit: And "¿Que pasa?" is loosely "What's happening?" eres tarado
The Spanish to English translation for "hola" is "hello." For example, if someone is approached with, "Hola, amigo!" or "Hello, friend!", one appropriate response could also be "Hola!" or "Hello!" in return.