An abbreviated form of "Laughing My Ass Off" that originated from the possibility of laughing so hard that one slides out of the chair and onto one's ass.
Person 1: So the nun says, "Not without my gimp mask."
Person 2: LMAO OUCH!
Person 1: Are you ok?
Person 2: Yeah, I laughed so hard I literally LMAO and now my butt bone hurts like hell.