I've always disagreed with that rule, but apparently for opposite reasons from most people. I think that punching up and punching down are both bad, as a rule of thumb. They're great comedy in certain situations, but as a rule of thumb, I think they're to be avoided.
As for when they're appropriate, it's about A) the potential damage that can come from it being misconstrued or B) the potential damage that can come from you doing part of it wrong. It's more common for there to be potential harm when "punching" down than up (hence the rule of thumb), but there are situations where it's fine or bad in either direction. But a lot of those situations are only in a context of real trust, for example with friends you don't have power over who know you well already, or a comedy club where it's understood that it's all for laughs.
As for when they're appropriate, it's about A) the potential damage that can come from it being misconstrued or B) the potential damage that can come from you doing part of it wrong. It's more common for there to be potential harm when "punching" down than up (hence the rule of thumb), but there are situations where it's fine or bad in either direction. But a lot of those situations are only in a context of real trust, for example with friends you don't have power over who know you well already, or a comedy club where it's understood that it's all for laughs.