This phrase was created by players of the video game Halo 3 on XBOX Live. When multiple players join a single game online, one player's XBOX is chosen to be the "host" of the game. All other players' XBOX's must communicate information with the host's. When there is high ping or lag, the delay in the transer of information can create problems in-game. It is not uncommon that the host will have a slight advantage over other players when buttons or actions are performed at almost the same time, especially in game types such as "Grifball" or "SWAT" which depend largely upon attacking at exactly the right moment to beat one's opponent. After-game statistics in Grifball games often reveal which player had "host" when most players' kill-to-death ratio is very negative or near zero but the host's ratio is extremely positive regardless of the skill of the players. The host experiences no delay in the processing of information (he has no lag) and therefore can often attack before his opponent (as far as the game is concerned). Even if both players press their buttons at exactly the same time in "RL" (Real Life), the player with host presses it first because non-host players' "button-press" of information must travel to the host's XBOX before the game acknowledges it.
In Grifball and SWAT the team with host almost always wins when latency is high. The term "sick host" describes such a situation. When one team can consistently kill players of the other team regardless of skill, but only because of having host and not experiencing lag, it is said that they have "sick host." "Sick" is colloquial modifier similar to 'awesome' which here greatly amplifies 'host.'
Whichever team has the player who has host does not necessarily win, but if a team has "sick host" there is no possible way for the opposing team to win. Playing a team with "sick host" is extremely frustrating and annoying because the game is never fair, and non-host players must suffer being "pwnd" for the duration of the game.
Red Team Player: "Dude! I just head-shotted this guy when he came around the corner but he somehow killed me and didn't die!"
Red Team Teammate: "I know dude. He's got SICK HOST. Every time I run into that guy we both shoot at the same time but he always kills me."