To greatly insult someone verbally (and sometimes physically) about themselves, situations they've been in, their family, friends, or anything under the sun. It is more of a competitive thing mostly used to see who can make the other person feel stupid. Types of jokes used are jokes about a person they look like, objects they look or smell like, a quote from a song, book, movie etc.. that they are relevant to, their clothing, etc. Most people use these to have a laugh, some people use it to piss the other person off (leading to fights).
There are certain words to use after every refernce such as