Ian: Ahh man, that guy's a fucking failtard!
Chris: I'm gonna delete the motherfucker's posts.
Ralph: "Quit being such a failtard, Waldo. Go back to 4chan where you belong."
Simply put, it means that the person it was directed to is fail, and also a retard hence failtard.
It is usually used when someone says something that is utter fail and is also retarded.
Person Two: *sigh* Fucking failtard.