I am done. [Is this sentence correct? if it's a correct sentence then explain it, how could it be correct]
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Yes.
It's informal English, but it's perfectly OK to say that.
It means "I have finished" or "I've had enough", depending on context.
This expression is used all over the English speaking world. It wouldn't be used in formal written English unless you were reporting speech. In everyday speech, every native English speaker will know what it means.
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