This usually occurs between friends; the guy and the girl start as friends however the guy starts to like her romantically and wants their friendship to develop into a relationship. When he lets his feelings be known to her, she turns him down but honestly tells him she wants him as a friend. At this point the guy needs to do some soul searching and figure out if they can go back to the way things were or they go their separate ways.
Sometimes girls will say this to a guy they don't know well as a subtle cue to go away. However this most often happens between friends and has the ability to destroy friendships. The guy has had his pride hurt and is left resentful and bitter and feels like he has been made a fool of by the girl who he thought so much of.
The girl is left hurt as well, since she feels guilty about hurting him and possibly losing a close friend. However she can quickly get annoyed at him if she thinks he's being immature or trying to guilt trip her into a relationship by acting depressed. Its an awkward situation and requires much tact and patience for things to turn out alright.
John Doe 2: "How did that go?"
John Doe 1: "I got the consolation prize...she wants to be friends."
John Doe 2: "Ouch, sorry man."
Joe: Hey Tony, check out my Hello Kitty Keychain. Can you say 'consolation prize'?
A guy goes on the pull and finds a girl he thinks he has a chance of havin sex with that night, and so feeds her with drinks till its almost inevitable. They end up round her place but she's so drunk, she passes out on the bed before they get their clothes off. The guy then, knowing he won't get what he came there for, flips her onto her back, wanks off and sprays his load down the middle of her spine.
Consolation : the comfort you feel when consoled in times of disappointment
Mev:"No, he said he got a consolation prize though"
tunde:"That's my dogg!"