it refers to the senseless and baseless conversation that friends have which are funny sometimes.people doing bakchodi are called bakchods.
Y - "that was good bakchodi man!nice stuff"
Gamer2: abhi abhi khele the toh chud gaye the..jyada bakchodi na pelo..
Politician: I will do this..that.....bla bla bla..
Audience1: He seems like a Bakchod politician..he has all development plans etc..
Addience2: Bah..he is a curroupt politician like everybody else..he is just doing bakchodi...lets get the free biryani and get out of here..!