It means that the other person is ignoring the problem. There's an idiom about "putting your head in the sand", based on the idea that ostriches do that (though, of course, they don't -- they wouldn't be able to breathe). Adding the 'everything's okay' just emphasizes that -- the person being spoken to is ignoring problems and pretending everything's fine.

They are suggesting the the person is pretending that things are ok, when they are not. . To put your head in the sand is from an old idiom that some birds hide their head in the sand to not see bad things, such as approaching danger. . Here they suggest that they may be putting their head in the "everything's ok" sand. That sand that makes it seem as if everything is ok, refusing to see that not everything is ok. . It's not a standard expression. It said to be clever. Most native speakers will understand it immediately, being familiar with the "head in the sand" idiom.