You use this to tell people they are horrible or can't do a certain thing.
It can be used as a joke to some, but also to make people really mad by a major insult.
Mostly it is used as a joke though.
Bob-"hey man, i fell off of the stairs"
Jim-"you fail at walking down stairs"
Bob-"dude, my girl just broke up with me"
Jim-"you fail at life"
Bob-"dude i hate you"
Origins point towards people posting pictures of projects or attempts and things that have failed and commenting 'You Fail'.
You Fail has worked its use quite like the term 'Ya Mum'.
Paul: 'No Kevin, You Fail.'
Kevin: 'Ya Mum Fails.'
This is a more personal attack than 'Your a noob' or 'you sux!' because this insinuates that the person who it is aimed at completely fails... at everything
see also you fail at life
(CS Pro pwn's a defenseless noob)
Pro: You Fail
Person 1: d00d! i cant figure out how to make this computer like totally turn on!
Person 2: You Fail.