Once said, it is often repeated by different persons many times, whether casually or with manic, outrageous movement/expression. If a person repeats "Gay Bacon," after it has been said already, it implies, "I agree," or more properly, "I concur," as the phrase is meant to be somewhat humorous.
Originating from Northeast Lauderdale High School in Meridian, MS, this phrase is commonly used by upperclassmen in band or athletic programs; discovered by the former, specifically by two Euphonium players, its meaning was derived from Airheads Extremes, which leave a sour taste in one's mouth, hence the displeasure indicated in its use.
Band director: Since we missed yesterday's practice, we're all going to go outside in the heat today and practice the show for two more hours than normal! *sarcastic* Isn't that great? (death sentence)
Euphonium player 1: Gay bacon. (That sucks.)
Euphonium player 2: Gay bacon! (I agree!)
Trombone player 1: Gaaaay bacon. (I also agree.)
Tuba player 1: Homosexual ham.
Everyone else on the back row: *whispering* What did he just say? .. Gay bacon! (Retard.)
Other band members within hearing range: Gay bacon! (Wtf?!)
Example 2, athletic setting -
Ball player 1: Where have you been? We've been waiting on you for an hour and a half.
Ball player 2: Coach made me do up-downs fifty times after practice, so I couldn't come pick you up.
Ball player 3: Gay bacon. (Sucks for you.)
Ball player 1: Gay bacon. (That guy's an ass.)
Ball player 2: Sorry man.
Ball player 1: It's okay. You wanna race to make up for it?
Ball player 2: Haha, gay bacon. (No way.)