The term can be expressed (written) two ways:
fail & Fail
The lowercase form expresses a smaller fail that no one will remember for longer than a week. Consider yourself lucky if you are simply charged with a "fail" crime.
The uppercase form of the word means that you have disgraced the human race and shall never be given respect again in your life, nor after that when you have gone to Hell either.
I failed when I lost that staring contest.
Your mom Failed in bed last night.
Kind of like the word "shit," "fail" is used by people who don't stop to think of a better word to use, making them pretty much useless to society.
Douche bag: Fail!
Person that can think rationally: Stop saying "fail" at people who weren't even trying to succeed at anything in the first place.
People who "fail" generally are not even trying to accomplish anything, or they simply do something different than you. This word is most commonly used by annoying teenagers (who put a bad reputation on gaming), who shout "FAIL!" every time someone makes a slight error.
If you point out an obvious flaw by saying "FAIL" you're obviously a failure yourself for having lack of logic.
Idiot who doesn't use logic to realize it wasn't the kids fault for being tripped, it was actually the other persons fault: FAIL!
Exceptionally bad at something, or to do/say something stupid to people,
Or for an item/thing to fail, it has to not be what it is, such as a funny comic not being funny, etc.
(Therefore meaning that it could be bad or poor at what it is intended to do)
You sir, FAIL.
(The person has just done/written something stupid or supposedly funny which achieves nothing it's supposed to.)