Originally used when someone noticed that Merry or Meriadoc Brandybuck in The Lord of the Rings seemed to pronounce potatowned quite well with his mouth. A clip was made and distributed throughout the internet. This clip can be viewed here:
The evolution of the term allowed it to travel across the globe, hitting and sticking with none other than gamers. While playing games such as Counter-Strike, World of Warcraft, and even Battlefield 2, you can find other gamers using the term.
Most gamers have picked up other statements such as "tomatowned" along the way as well.
There is now a small and growing website community that has picked up the domain www.potatowned.com and uses it for recreational off topic discussions.
While hanging out - "dude that freaking rocked, Chuck Norris just potatowned that guy by roundhouse kicking him in the face!"
In use of the website - "holy crap did you see that one sweet video? I found it at potatowned.com"
While gaming - "Z0mg Roffle Copters... t3h nub just got potatowned!"