A corruption of the word "Owned." This originated in an online game called Warcraft, where a map designer misspelled "owned." When the computerbeat a player, it was supposed to say, so-and-so "has been owned."
Instead, it said, so-and-so "has been pwned."
It basically means "to own" or to be dominated by an opponent or situation, especially by some god-like or computer-like force.
"Man, I rock at my job, but I still got a bad evaluation. I was pwned."
This is a common form of reasoning about pwnage and is commonly accepted in most formal pwning systems. In the general form it states:
A Pwns B
If A has happened,
then we know that B has been pwned.
P.W.N.E.D.
Chuck Norris Pwns all Mortals
Socrates is mortal.
Chuck Norris has happened,
therefore by modus pwnens Socrates has been pwned.
This example is also valid with "you are" and "you have" in place of "Socrates is" and "Socrates has" respectively.
Note: It is well known that only an oracle (i.e. Chuck Norris) can decide if Chuck Norris Pwns non mortals.