This is a mispronunciation of the word "funny." It is used mainly by trendy fucks that are trying way too hard to be cool. These are the same fools that use abbreviations like "lol" and "wtf" in everyday spoken conversation.
Guy: LOL! The Hangover was so funnay!
Other guy: God damn it! You fool!
It is said of the situation where a person has the bad luck to make contact with his testicles against an undefined surface or object, intentioned or not.
Given the nature of the word, it is more appropriate to design cases where the interaction is made with a moving object, for example, a ball.
Although it is extremely painful for the victim, it tends to be considerably funny to people who witness it.
Today in the baseball game the pitcher took a nutshot; the baseball hit him in the nuts.
Man, I just watched the funniest nutshot video ever.