In the US I heard "Looking good!" being used by spectators to encourage disabled participants of a race. What does it actually mean? In this context it can't possibly be a comment on their appearance as is suggested in the answers I read about the meaning of "looking good".
The literal meaning is "You are looking good".
The implication for someone in a sporting event is that despite what the participant may think (they are tired, or the score is against them) that things are better than they seem. It is a kind of encouragement.
There is nothing special about them being disabled or in a race, one could use it for anyone who is in some sort of struggle.