A fat, heterosexual woman who constantly hangs out, sometimes sleeps with her gay male friends.
Often the fat female was an outsider anyway to her own straight culture because of her fatness. Unable to get many men in the straight world she befriends the ultimate cute boy. He is stylish, funny, fun and sometimes clever and a hell of a partier. They spend all their time together going to bars and late at night when neither has been chosen by others they go home together after the bar closes and have sex. Some faghags have died from AIDS because of this. While "faghag" ryhmes we should not forget the word hag means ugly. Originally the faghag was not so attractive. Maybe now in 2008 the meaning of faghag may include an stunningly, attractive woman hanging out with a gay man but back in the 1980's it was not so.
The fag hag had so much fun with her friend Derek that she sometimes forgot she was unpopular in the regular, straight world.