"Break a leg" is a good thing! It is usually said to someone going onstage to perform. Actors, singers, performers, etc. It can also be said to someone who is auditioning for something. It is a way of saying, "I wish you good luck!"

Yes, it's a way to wish someone good luck.... E.g. "I've got an important exam tomorrow..." "I'm sure you'll be fine....break a leg!"

It is typically a way to wish someone luck, it's like saying "Go out there and do really well!" If you were to actually say those words with clenched teeth and no smile, it would likely mean that you literally were telling them to break their leg, which would not be a nice thing to wish upon someone ;)