Generally used by other gay guys to refer to the really-out-of-it trashy gay guys who partied a bit too hard and are now too out of it to know what's going on.
"Oh god, there's a DFQ in the restroom trying to wash his hands in the urinal..."
"The sun is coming up and the sunglasses are coming out; this place is getting a bit too DFQ; time to go home I think."
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.