Why are they asking this information?

Your Adjusted Gross Income is considered to be your true income after certain deductions.

How to answer this question / fill out this section

This figure can be found on either Line 37 (1040), Line 21 (1040A), or Line 4 (1040EZ) of your Federal tax return. Students who are married, but file separate returns will need to combine their AGIs from their individual return for this field.