To lulz is the act of "lulzing" which is laughing uncontrollably while you are under the influence of alcohol, drugs etc... You may lulz out of random, even when something funny does not happen. Lulzing has no limits! Lulzing also may include crying out of pure laughter, spitting out your drink/having it come out through your nose, ROFL-ing (literally) and most importantly, saying the word "lulz" out loud and/or using it in a sentence while laughing.
While smoking weed, Rory told Carlie she "wants to watch Treehouse, because she is baked out of her mind". While this is not particularly funny, Carlie proceeded to lulz and said "I am lulzing up a storm" through tears of pure joy.