Did the Prophet Muhammad (saws) use humor with those around him?

Yes, the Prophet Muhammad (ﷺ) did use humor with those around him. He recognized the importance of light-heartedness and the joy it brings to interpersonal relationships. For instance, there are narrations that illustrate his use of humor in various situations.

One such narration from Al-Kafi recounts a conversation where someone asked Imam Abu al-Hassan about mingling with people who tell funny stories. He responded, "It is not an offense if there is not that." He then mentioned how Arabs would come to the Messenger of Allah and bring him gifts, asking him to "Pay us for our gifts." The Messenger of Allah would laugh at this and, when he felt sad, would express a wish for the Arab man to visit again, saying, What happened to the Arab man? I wish he comes by Al-Kafi 23:3717.

Another narration highlights the importance of humor for building camaraderie. Imam Abu 'Abd Allah asked about the practice of telling funny stories, to which the narrator responded that it was very little. The Imam advised against this, stating, Do not do so. Telling funny stories is of delightful moral discipline. You can bring joy to your brother (in belief). The Messenger of Allah would tell funny stories to bring cheerfulness feelings to a man Al-Kafi 23:3719.

These accounts illustrate that the Prophet Muhammad (ﷺ) not only engaged in humor but also encouraged it as a means to foster joy and strengthen bonds among people.