Red hit it pretty close to the mark here, I think.

Typically, when "I'm fine" is brought up, I see it as meaning...

"I don't want this to turn into an argument." or "Why can't you see how hurt/upset I am right now?"

Mostly though, I think we use it when we have conflicting emotions inside and don't know how to express them in words that others (or we, ourselves) can understand.

For example: I'm sure everyone has felt, at times, so frustrated you wanted to smack 'em along side the head, but at the same time you really, really just want to hold them, and be held. Inside you're really screaming..."You just don't get it!"

How to eliminate it? pfft....I don't know. When feelings are on "high alert", communication is pretty difficult. So, unless you have a really good friend who will tie you both up until it's worked out (and untie you later ), I don't see it going away any time soon.