Usualy used in online games when you completely destroy someone with no hope of them doing any damage back.
Usualy when someone experianced beats someone much less experianced hands down. Or (for example in eve-online) a fleet of ships takes on one person who clearly has no hope of winning against them. IE they will be/have been Pewned.
Used usualy in online games (or to take the piss on pictures) Pwnage is when someone is attacked with no hope of winning. Usualy someone with a lot of skill attackes a newbie or someone less skilled. Another spin off of pwned but usualy used for situation when overkill is involved. IE and air strike on one person.
In terms of eve online. One person is jumped on by a fleet and is pwned with no hope of surviving. IE pwnage