How should I answer it and what is expected to be a good answer as I've not ever worked remotely.
Well, I would say that there isn't any "wrong" answer. To work remotely there are many possible configurations.
obvious natural reason is to be honest and tell the truth, and specify what your hardware is, or whatever they prompt to you. This will become evident soon enough, and there is no point in deceiving for benefit (it will actually harm you on the long run).
Besides that, you can also invest on "better" hardware for your gear, so you are well prepared for any remote job (dual or triple screen, some really smooth mouse, an ergonomic keyboard, etc.). This investment can have further benefits than the ones anticipated.
Although to be honest, a good programmer could write his/her code on paper (or pseudo-code), regardless of the means to implement it. But, as in any application, you have to truthfully answer whatever it is prompted and give it some "spice" for it to be effective.