(Based on the story from Skins UK "Secret Party" webisode) In medieval times, poor villagers rebelled against their monarch and accumulated atop hills in the Great Britain countryside, creating their own small faction of free government. They dug on the hill, giving them the name "diggers". They grew and harvested their own drugs and made their own liquor and brewed their own mead. A kind lord near one of these hills would throw crazy medieval parties, and always invite the diggers, hence the name "Digger Party".
In current times, a Digger Party is a ridiculously insane party with plenty of drugs and alcohol, and lots of crazy, sloppy, exciting people. A Digger Party is often held in a private or abandoned (and very large) building. It's a rager at it's fullest extent.
Alice: Hey, I heard David is throwing a Digger Party at the empty farmhouse down the street!
Kevin: Yeah, it seems like the whole town is going! We should take a lot of drugs before we go and get severely inebriated while we're there!
Alice: What a swell idea!