Final answer:
The word 'laughing' is an adjective modifying the subject in the sentence.
Step-by-step explanation:
In the sentence 'The laughing children agreed that the joke was the funniest one they had ever heard,' the word 'laughing' is used as an adjective modifying a subject. It describes the children, telling us what kind of children they are - they are laughing.
Learn more about parts of speech