19 This is the testimony given by John when the Jews sent priests and Levites from Jerusalem to ask him, “Who are you?” 20 He confessed and did not deny it, but confessed, “I am not the Messiah.” 21 And they asked him, “What then? Are you Elijah?” He said, “I am not.” “Are you the prophet?” He answered, “No.” 22 Then they said to him, “Who are you? Let us have an answer for those who sent us. What do you say about yourself?” 23 He said, “I am the voice of one crying out in the wilderness, ‘Make straight the way of the Lord,’” as the prophet Isaiah said.
Clearly the actions of John the Baptist were disturbing the powers that be. In the holy land of Jesus' time there were several groups of people. The Sadducees who were what we might call the government ruling class or religious heirarchy, the Pharisees who were the religious intellectuals, the Essenes who were a kind of monastic class, and the Zealots who were a class of people who wanted to get rid of the Romans who were ruling the land.
This group was from the Pharisees according to verse 24. John the Baptist was stirring things up and was very popular with the common people. He was calling for repentance. It's quite natural that they would want to know on what authority he did this. The two obvious possible answers were that he was the expected Messiah or he was Elijah the prophet returned from the dead. John says he is neither of those and so they are left in a quandary. "Well who are you then?" is the obvious question. John answers with a quote from Isaiah thereby claiming that he is the fulfillment of a prophecy.
"Lord" is a special word because it has multiple meanings. Normally it refers to a member of the aristocracy or royalty but it also is the word used to refer to God rather than pronounce the name of God so it also can mean quite literally "God." In this case John means both since Jesus is Messiah, i.e. the one who is to come, King, anointed, and some also expected a priestly figure. The Essenes were expecting two figure a kingly figure and a priestly figure, but in fact the one whom John is a harbinger for is simultaneously King, priest, and God.