Two (or more) people roll play that they are having sex. It's like sextexting in a few ways. Online sex is done by messaging through a chat box of some sort (it depends on what website your on) Simple by using the asterisk * or dashes - to mark what your doing.

For Example:
"Come here *Grabs you your hand and kisses you*"

"Come here -Grabs you your hand and kisses you-"

Though the asterisk is more common to use, some people uses the dashes.

It may not be as fun as the real thing, but it's still pretty fun. Trust me.... I know ;)