This expression means; Everything is fine. Everything is good.

In the middle ages, glasses and other valuable, fragile objects were
encased in butter in order to transport them safely and prevent
them from breaking. Butter was heated and the liquid was poured
over the breakable glass or porcelain goods in large wooden
barrels. Once set, the hardened butter protected the delicate
products and ensured that everything would be safe for the
duration of the journey. On arrival, the butter was warmed, and the
transported items were gently removed from the liquid and cleaned.
During transportation someone would ask “Ist noch alles in Butter?”
(Is everything still in butter?) to check if things were intact during a
bumpy journey. Over time this phrase came to mean that everything
was going smoothly, and everything was well.