It's referring to the feeling you get after you've been laughing really hard for a long time; similar to being slightly drunk.
You use it in the place of LOL to convey that you laughed harder than you normally would if you had just LOLed.
PinkPoobah: Did anyone actually throw eggs at him?
Brittany: YEAH! This one lady attacked him with a whole egg carton!
PinkPoobah: OMG!!! LOLCOHOL!!