What does it mean when a pilot says they are 3 by 3 or 5 by 5?
It was originally radio terminology referring to signal strength and readability. If you’re dealing with a five point scale for both, then a signal that is coming in “5 x 5” would be a perfect signal, both strong and perfectly readable.
The phrase has evolved to mean “everything’s fine”. So if you hear a pilot say “five by five”, consider it a good thing 
They are speaking of the signal strength and readability of a radio transmission.
The first digit is signal strength, according to this scale from 1 to 5:
1 Scarcely Perceptible
2 Weak
3 Fairly Good
4 Good
5 Very Good
The second is readability, on this scale from 1 to 5:
1 Bad
2 Poor
3 Fair
4 Good
5 Excellent
So “5 by 5” would mean “Signal strength very good, readability excellent”.
Couldn’t this just mean the pilot can hear ground control very well as they are telling him he is going to crash into the ocean?