This word is a popular variation of the word owned
and is typically used within online gaming circles.
This term was first coined by a geek who attempted to modify his copy of the popular first-person shooting game Half-Life
so that the word "Owned" would appear on the screen of anybody he killed, unfortunatly (due to the close proximity of the "P" and "O" key on the standard English keyboard) he accidentally typed it as "pwned" while he was modifying it, so now this word was appearing on the screen of every other gamer that he killed, other gamers thaught that this was 1337
speak for pistol-owned, and started using the word whenever they killed somebody with an inferior weapon i,e "I pwned him with my pistol even though he had the rocket launcher!"
Nowadays though it pretty much means the same thing as owned
Also see ownage pwnagepwn
"I pwned your ass so good in that last game!"
"I have leet
skillz, you're gonna get so pwned"