For children, this is an adjective used to describe the child for making a good grade in school. On a report card, if they received an "O" for Outstanding, rather than an "A", they are described as 'owesome'.
As a more mature word, this adjective is used to describe something so awesome, it makes you want to "oh!" (orgasm).
"Wow, Johnny got an 'A' for 'awesome', and his little sister got an 'O' for.... 'owesome'."
"Oh my God, Tomas was so owesome last night..."
"Wow, look at her owesome body!"