1. An act of dominating an opponent.
2. Great, ingenious; applied to methods and objects.
Originally dates back to the days of WarCraft, when a map designer mispelled "Own" as "Pwn". What was originally supose to be "player has been owned." was "player has been pwned".
Pwn eventually grew from there and is now used throughout the online world, especially in online games.
2. "This strategy pwns!" or "This game pwn."
He pwns all of you at basketball.
I pwn your sister... all night long.