A situation in which you may laugh at a lesbian or stereotypical lesbian situation - usually used by fellow lesbians to point out how cliqued their lesbian friends behaviour is. It is a play on the name of popular lesbian TV show, The L Word.
"Did you see those two girls fighting last night at the lesbian bar?"
"Yeah it was totally Lol Word!"
"Me and my girlfriend both own cats."
"You are living the Lol Word."