5K1ll3d is simply the 1337 sp33k version of skilled. It is an adjective used to describe a player's ability in that particular game. The player's knowlege of where their opponent is, where to place grenades, reaction time, ect, all attribute to 5k1llz.
"How did you know I was there? either you are hacking, or you are very 5k1ll3d."
"Tripping and falling off the side of that building was the most un5k1ll3d thing I have ever done."