Its a euphemism for a Vagina. It can come in two varities. A good Sitch or a bad sitch. Sitch is short for situation. ie; She has a good situation to be in or a bad one. Get it?
Dude #1 - So how was that chick last night?
Dude #2 - She had a tasty little sitch.
- OR -
Dude # 1 - So, how was that chick last night?
Dude #2 - Man she had a nasty sitch! All hairy like a briar patch!