At one point in the game, the developers reduced the power of swords in melee combat.
This resulted in players complaining that it was like they were hitting each other with nerf bats, not swords.
From then on, if ever something gets made less worth while than it had been originally, it is considered 'nerfed'
"Damn, the Devs nerfed those axe's real good!"
suxors. Often refers to MMOFPS's or MMORPG's, when the game designers change in-game rules and they screw stuff up.
"Whatever I was doing, I'm not doing it anymore, I got nerfed."
"Our junk was so much better before the designers all nerfed it."
I think it's something like "Not Even Really Functioning Effectivly Disabled/Destroyed" or something similar